Tripling the Tax on Alcohol

Would it do any good?

A recent article in Slate by Reihan Salam, a sort of modest proposal on behalf of a big boost in alcohol excise taxes, caught considerable flack from free market advocates and conservative bloggers last week.

Salam says Americans agree on the fact that marijuana is not as dangerous a drug as alcohol, and that this agreement offers us an opportunity to “regulate alcohol more stringently than we regulate marijuana.” In fact, Salam argues, why not push the envelope: “Raise the alcohol tax to a point just shy of where large numbers of people will start making moonshine in their bathtubs.”

Salam tries to head off some of the usual criticisms by noting that Prohibition was an unmitigated disaster, but that “what most of us forget is that the movement for Prohibition arose because alcohol abuse actually was destroying American society in the first decades of the 20th Century," and that companies like Anheuser Busch and MillerCoors are plotting with national retail chains as you read this, scheming to make alcohol as cheap and easy to buy as humanly possible.

Salam further justifies a tripling of alcohol taxes by viewing it as a tactical offset to the efforts of liquor companies to focus on their best customers: “the small minority of people who drink the most.” Salam says that right now, it costs about two bucks per inebriated hour to get your drink on. Can we really argue that this price level is just too unsustainably high? Drug expert Mark Kleiman, Professor of Public Policy at UCLA, agrees.  In his book Marijuana Legalization: What Everyone Needs to Know, Kleiman and co-authors argue that “tripling the tax would raise the price of a drink by 20 percent and reduce the volume of drinking in about the same proportion. Most of the reduced drinking would come from heavy drinkers, both because they dominate the market in volume terms and because their consumption is more price-sensitive…."

Minnesota legislators recently passed a bill that opponents say would increase state excise taxes on alcoholic beverages to six times the current levels. Supporters of the alcohol tax say it means an extra $200 million per year to the state, at a cost to drinkers of about seven cents per drink. Or, in Salam's example: “Charging two-drink-per-day drinkers an extra $12 per month seems like a laughably small price to pay to deter binge drinking…. If you’re going to tax tanning beds and sugary soft drinks, why on earth wouldn’t you raise alcohol taxes too?”

Why wouldn’t you? Because it doesn’t accomplish what you want to accomplish, writes Michelle Minton at openmarket.org, the blog of the Competitive Enterprise Institute.  After a bit of throat clearing about the Nanny State, Minton writes that “fortunately, a society’s relationship with alcohol isn’t based solely on the price of alcohol…. Research shows that alcohol price is not an effective means of achieving lower total consumption or reducing binge drinking.” As evidence, Minton points to studies showing that Luxembourg and the Czech Republic “have both the highest priced alcohol and the highest rates of consumption in Europe.”

As for a comparison favored by Salam—New York’s anti-smoking campaign—Minton admits that the new higher cost of cigarettes cut the adult smoking rate dramatically, but points out that “New York is now the number-one market for smuggled cigarettes—which account for more than half of all cigarettes smoked in the state.” This is a powerful argument. If we triple the taxes on alcohol, do we risk a black market of dangerous home-brew bootlegger booze?

In my view, such threats are real, but they are theoretical. The current costs of alcohol in socioeconomic terms are enormous and undeniable. Tripling the alcohol tax might be asking for trouble, but we could get there in stages if Americans saw it as a desirable goal. Arguments against tax increases tend to ignore the fact that alcohol is a different kind of product, capable of addicting a significant minority of users, in addition to killing a certain percentage of drinkers outright through alcohol poisoning and traffic accidents. If we ignore the issue of drug dependence, and the health and legal costs of assorted alcohol-related mayhem, and simply lean on the fact that most people who drink use alcohol responsibly, then it gets easier to argue against increases in alcohol and cigarette taxes. Alcohol is not like other household products, and needn't be regulated like them.