Federal Excise Tax
Proponents of higher tax on beer often claim that the imposition of another so-called "sin" tax on the American beer industry would raise revenue while discouraging the abuse of our products. Recent history proves that these claims are based on false assumptions. During the past decade, every national indicator has shown a steady decline in alcohol abuse, underage drinking, and drunk driving. That decline is due, in part, to heightened alcohol abuse prevention campaigns by government and private sector groups, working together with the brewers. Contrary to what some believe, there is no real correlation between higher taxes and abuse.
In fact, the doubling of the beer tax in January 1991, from $9 to $18 per barrel, had disastrous effects: sales declined, 31,000 workers were displaced, and the middle class was hit with yet another tax hike.
As a result, taxes now total about .80 of the price of every six-pack and are the single most expensive "ingredient" in beer. Consumers pay .32 in direct federal taxes on every six-pack of beer, an average of .18 in additional state and local taxes, and an average of .30 in sales tax. Beer taxes now add up to billions of dollars for government: $3.4 billion at the federal level, $1.9 billion for the states, and $3.1 billion in sales taxes each year. Currently, government makes about seven times more in beer taxes than the nationÕs brewers make in profits.
During the past 30 years, there were over 100 instances in which states raised their beer excise taxes. While these increases were smaller than that imposed by the federal government in 1991, and were limited by definition to their geographical scope, they were nonetheless significant.
Every tax increase at the federal level invites the states to follow suit. All 50 states, some cities and counties, and the District of Columbia already impose an excise tax on the sale of beer. Most states and many local governments also levy a general sales tax, which is added on top of the excise tax and compounds the total consumption taxation of beer.
The net results are highly regressive taxes on middle class consumers which discourage moderate consumption and create revenue loss. (Those who abuse alcohol are rarely affected by price increases.) The effects are also painful to state governments, which are under increasing pressure by the federal government to pay for their own programs through sales taxes and other means.
Consider the impact of the 1991 tax on the American malt beverage industry:
- 31,00 American jobs were lost in the brewing, wholesaling, and retailing industry tiers;
- Industry sales fell approximately 3.0% off trend. This was, by far, the largest sales decline in the past 30 years;
- Actual volume of sales declined by 4.3 million barrels, the equivalent of approximately 59 million cases;
- When sales were measured against other periods of recession or economic decline, this sales disruption was the most substantial and most striking ever. Empirical evidence argues that the decline is the result of the tax increase, not the recession.
A key measure of the fairness of a tax system is its progressivity. The doubling of the beer excise tax in 1991 was regressive, and therefore unfair, because it hit the lower and middle classes hardest. Unfortunately, another tax increase would have the same effect. Increasing the federal excise tax is discriminatory against the nearly 2.7million American workers and 80 million responsible consumers affected by the beer industry. Another tax hurts an overwhelmingly domestic industry. And it is exactly the wrong prescription to pay for new health care programs, to reduce the federal deficit, or to finance other federal initiatives.