The National Council on Alcoholism and Drug Dependence fights the stigma and the disease of alcoholism and other drug addictions.

NCADD Action Alert

Addendum Talking Points: Federal Excise Alcohol Taxes

Related to Action Alert Issued January 30, 2003

BACKGROUND

Alcohol Taxes in the U.S. are Comparatively Low and Lag Far Behind Inflation The relative cost of alcoholic beverages has declined dramatically in the past 50 years. Even with a federal tax increase in 1991, the average prices of beer and wine have fallen by more than 25 percent relative to the Consumer Price Index; the price of liquor has fallen almost 50 percent over the past five decades. The federal excise tax rates resulting from the 1991 tax increase are approximately $0.05, $0.035, and $0.11 per drink of pure alcohol for beer, wine, and liquor, respectively. These tax increases failed to account for the effects of inflation in the last half century. For example, the tax on distilled spirits would have to increase to approximately $8.80 per fifth of 80-proof liquor (i.e., approximately fourfold higher) to have the same real value it had in 1951. Similarly, the tax on beer would need to increase fivefold to $1.50 per six-pack to offset inflation since 1951.1 Costs of Alcohol Use Already Far Exceed Alcohol Tax Revenue The economic and social costs of drinking already far exceed alcohol tax revenues. Alcohol problems cost American society more than $184 billion in 1998 in health care, criminal justice, social services, property damage, and loss of productivity expenses.2   Alcohol is a factor in as many as 105,000 deaths annually in the United States3  and a primary contributor to a wide array of health problems and human suffering. These include various cancers, liver disease, alcoholism, brain disorders, motor vehicle crashes, violence, crime, spousal and child abuse, drownings, and suicides.4 Federal tax revenues from alcoholic beverages totaled nearly $7.7 billion in 2001.5   The brewing industry's proposed 50 percent beer tax cut would rob the U.S. treasury of about $1.75 billion each year, while the liquor producers' proposed 22 percent cut would cost the treasury $860 million in lost revenue. Such cuts cannot be justified at a time when the federal deficit is projected to soar to near record levels of $200 to $300 billion in the next two years. Alcohol Tax Cuts Would Harm Public Health and Safety and Increase Underage Drinking According to research reported by the National Institute on Alcohol Abuse and Alcoholism, increasing beer prices is an effective means of reducing alcohol problems. Higher alcohol taxes lead to reductions in the levels and frequency of drinking and heavy drinking among youth,6  lower traffic crash fatality rates (especially among young drivers)7, and reduced incidence of some types of crime.8   Logically, lower beer taxes will likely lead to higher levels and frequency of drinking among youth and add to traffic crash fatalities. Researchers at the National Bureau of Economic Research estimate that if alcohol taxes had kept pace with inflation since 1951, the number of youth who drink beer would have declined by 24 percent.9 Most Drinkers Don't Drink Much and Are Not Burdened by Alcohol Taxes The top 20 percent of the heaviest drinkers consume 85 percent of all alcoholic beverages.10   Therefore, the remaining 80 percent of moderate drinkers consume, on average, relatively little alcohol and pay a negligible amount of alcohol taxes. The federal excise tax falls on heavy drinkers who appropriately assume a greater share of the costs of problems caused by their drinking. Public Opinion Does Not Support Alcohol Tax Cuts By a two to one margin, Americans oppose rolling back the federal excise tax on beer, according to a 2001 national poll conducted for CSPI and MADD.11   The vast majority of Americans –– 71 percent –– would support increasing the national beer tax a few cents per bottle to equal the tax on liquor, if the funds were used for substance abuse prevention. A clear majority of Americans (62 percent) feels that the current federal excise tax on beer is about right or too low. The poll also found that 75 percent of Americans believe that a beer tax cut would benefit the beer industry more than consumers. About 77 percent of drinkers agreed.12 Producers Are Concerned About Profits, Not Consumers Alcohol producers are prospering, and despite assertions that the tax cuts would lower prices for consumers, they have not hesitated to raise prices periodically to maximize profits. Producers aren't concerned about average drinkers, because they know that most of their revenue comes from price-insensitive heavy drinkers. While the U.S. economy sags, Anheuser-Busch is enjoying the kind of healthy profits that most companies can only wish they had: 16 straight quarters of earnings-per-share growth. Anheuser-Busch's stock rose 7 percent during 2002 — while the Dow Jones industrial average sank roughly 17 percent and had its worst yearly decline in a quarter century. Congress Has Largely Avoided Alcohol Tax Increases Since 1951 The tax on distilled spirits remained at $10.50 until 1985 when it rose to $12.50 per proof gallon. Under the Revenue Reconciliation Act of 1990, liquor taxes again went up in 1991 to $13.50 per proof gallon, their current rate. Under the same Act, federal taxes on beer and wine rose for the first time in 40 years to $18.00 per 31-gallon barrel on beer (up from $9.00 per barrel) and $1.07 per gallon on wine (up from $0.17 per gallon).

REFERENCES

Chaloupka, F.J., Grossman, M., Saffer, H. (2002). "The Effects of Price on Alcohol Consumption and Alcohol-Related Problems." Alcohol Research and Health. 26(1): 22.  Harwood, H. (2000). Updating Estimates of the Economic Costs of Alcohol Abuse in the United States: Estimates, Update Methods and Data. Report prepared by the Lewin Group for the National Institute on Alcohol Abuse and Alcoholism.  McGinnis, J.M. & Foege, W.H. (1999). "Mortality and morbidity attributable to use of addictive substances in the United States." Proceedings of the Association of American Physicians. 11(2):109-118.  National Institute on Alcohol Abuse and Alcoholism. (2000). "Drinking over the life span: Issues of biology, behavior and risk." In: 10th Special Report to the U.S. Congress on Alcohol and Health. Bethesda, MD: U.S. Department of Health and Human Services, pp. 1-66.  Congressional Budget Office. (2001). Budget Options. February 2001, Chapter IV.  Coate, D. & Grossman, M. (1988). "The effects of alcoholic beverage prices and legal drinking ages on youth alcohol use." Journal of Law and Economics. 31(1):145-171.  Ruhm, C.J. (1996). "Alcohol policies and highway vehicle fatalities." Journal of Health Economics. 15(4):435-454.   Cook, P. J. & Moore, M.J. (1993). "Economic perspectives on reducing alcohol-related violence." In: Martin, S.E., ed. Alcohol and Interpersonal Violence: Fostering Multidisciplinary Perspectives. National Institute on Alcohol Abuse and Alcoholism Research Monograph No. 24. NIH Pub. No. 93-3496. Rockville, MD: the Institute, pp. 193-212.  Grossman, M. et al. (1994). "Effects of Alcohol Price Policy on Youth: A Summary of Economic Research." Journal of Research on Adolescence. 42(2):347-364.  Rogers, J.D. & Greenfield, T.K. (1999). "Who Drinks Most of the Alcohol in the U.S.? The Policy Implications." Journal of Studies on Alcohol. 60(1).  MADD/CSPI Nationally Representative Poll conducted by Penn, Schoen, Berland & Associates, Inc. July and August 2002.   MADD/CSPI Nationally Representative Poll conducted by Penn, Schoen, Berland & Associates, Inc. July and August 2002.

National Council on Alcoholism and Drug Dependence, Inc.

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