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Cut the Deficit? Tax Budweiser! The Case For a National 'Frat Tax'

A modest tax on alcohol would dramatically cut crime, prevent thousands of deaths, and pull in $20 billion a year. So why is Congress too terrified to even consider the idea?  By Mark Kleiman and Will Godfrey

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Adjusting for inflation, even tripling alcohol taxes would keep them in line with 1950 levels,

What if we told you that a simple change in the law would put a noticeable dent in the country’s number one drug abuse problem, prevent 800 homicides and 1500 accidental deaths per year, reduce healthcare costs, reduce teenage pregnancy, decrease domestic violence, protect fetal health and shrink the Federal deficit by $20 billion, all without requiring any arrests or incarceration?

You’d be pretty interested, right? 
 
Now what if we added that despite the frantic fracas over the deficit, not a single politician in Washington has even dared to mention that change, largely in deference to one of America's most powerful lobbies?
 
We suspect you’d be pretty angry.
 
Well, it's time to get angry. This week, as politicians on both sides of the aisle squabbled over defunding everything from the Post Office to P.B.S. to avoid the government shutdown, they pointedly ignored a legislative opportunity that would result in a host of benefits for both the nation's health and its budget. 
 
Looking to increase the nation's revenue? Here's a simple idea: Why not triple the Federal tax on alcoholic beverages? The ramifications of such new taxes would be pretty predictable: in addition to helping fill the government's depleted coffers, the new taxes would also help cut back on alcohol abuse, currently at an all-time high in this nation. Unfortunately it's not a proposal that politicians of either party would dare to consider.
 
Certainly, sin taxes are not a new idea. Many cities have already used their tax codes in an attempt  to lower the consumption of products that have adverse health effects on their citizens. The most obvious example is tobacco companies, which have been forced to endure double-digit increases in state taxes in the past ten years. During the same period, smoking rates across the nation declined by 10%. It's a simple calculus: When the prices of products go up, consumption goes down.  (Of course, overly-punitive taxes can sometimes go too far: In New York City, a tax increase promoted by Mayor Michael Bloomberg raised the price of a pack of Marlboros to over $12, cutting down on cigarette purchases in New York while creating a vast,  illicit underground market in untaxed smokes.). But for the most part, tobacco taxes have proved to be an efficient way to reduce smoking throughout the nation. In the decade before a wave of tobacco-tax increases that started with the Master Settlement Agreement in 1998, the number of smokers in this contry had actually been rising. Since then, the percentage of Americans who smoke regularly has plummeted from more than 35% to just over 20%.
 
Undoubtedly, a  similar tax on beer would greatly reduce the expensive problems caused by frequent consumers of alcoholic beverages. Less problem drinking means fewer murders, fewer highway fatalities and fewer unwanted pregnancies (alcohol is also by far the number one date-rape drug). Even if consuption is slightly lowered, tripling the alcohol tax is certain to bring in billions of additional revenue, mostly coming out of the pockets of probem drinkers rather than social aficionados.
 
Consider this: A 12-ounce can of regular beer, a six-ounce glass of wine, and a shot of whiskey all contain about the same amount of alcohol—what people who study drinking call a “standard drink.” Right now, the average price of a standard drink for home consumption is about a dollar—of which about a dime goes to pay federal taxes and a nickel is spent on state tax. (Whiskey is taxed more heavily, and wine less heavily, but beer makes up two-thirds of the alcohol consumed by Americans, and beer is taxed at about a dime a can.) If we add up all the damage done as a result of drinking, it averages out to about a dollar a drink. The difference, in effect, is a subsidy to heavy drinkers—and the industry that serves them—borne by moderate drinkers and non-drinkers.  Everyone’s health insurance includes the cost of treating the victims of their own drinking, and the victims of other people’s drinking. That’s neither fair nor efficient.
 
The fact is, inflation has been eating away at the real value of federal alcohol taxes ever since the Korean War. Even tripling the alcohol tax wouldn’t get it in line with 1950 levels, adjusted for changes. With Federal taxes now accounting for about 10% of the price of a drink, tripling the alcohol tax would increase the priceof each drink  by about 20%. Based on careful studies by Duke economics professor Philip Cook, this would reduce total drinking by about 10%, and in turn reduce homicide and automotive accidents by about 5% each. That’s a lot of lives to save with the stroke of a pen. And taxation also turns out to be much more effective than age restrictions in reducing drinking by teenagers.
 
During the debate raging in Congress over funding health care reform, there were proposals to tax tanning beds, plastic surgery, and soft drinks. But no Congressman or Senator dared broach the subject of raising taxes on alcohol, even though the $20 billion the government would raise by tripling liquor tax rates would have provided about a fifth of the needed revenue stream.  Alcohol is similarly absent from the current debate over curbing the budget deficit. Why has such an obvious idea been ignored by the political establishment? The short answer is that too many powerful forces push in the opposite direction.
 
Politics runs on money, and not surprisingly the alcohol industry has bucket loads of it, spending about $2 billion alone on advertising in the U.S. each year—making it one of the top three benefactors of the U.S. media. That kind of money affects us all—and can't help but influence the editorial content of newspapers, magazines, and networks dependent on alcohol advertising. But in addition to targeting you and me, the industry also aims its messages directly at decision-makers. Alcohol interests consistently pour cash into the campaign coffers of Congressional candidates  (more than $10 million in the 2005-6 election cycle) so you can bet that few of the recipients of these alcohol-soaked funds will want to bite the hands that feed them.
 
The biggest source of alcohol money in Congress, according to the Center for Science in the Public Interest (C.S.P.I.), is the political action committee of the National Beer Wholesalers Association (N.B.W.A.). “Mega-brewer” Anheuser-Busch comes in a close second. Together, these two organizations alone provide around half the total alcohol-related cash injection to Congressional campaigns. Naturally, the industry presents such expenditure as support for politicians who already share its views, rather than as a tool to exert its political influence.
 
But circumstantial evidence suggests that influence can be brought to bear. Throughout the years, alcohol money has helped support many grassroots substance abuse prevention and treatment organizations around the country. A 1999 C.S.P.I. study showed that 79% of such groups not accepting alcohol funding backed proposed increases in state alcohol excise taxes—compared to just 50% of groups that did take alcohol funding. As with the politicians, the chicken-and-egg relationship of donations and policy positions can easily become blurred.
 
As a result, any debate about raising the alcohol tax is certain to provoke a deafening roar from the industry. The alcohol companies spend relatively modestly on the federal level—Anheuser-Busch spent $3 million on lobbying in 2006, and the N.B.W.A. almost $2 million over the last two years, while the combined 2010 lobbying spend of alcohol producers is estimated at over $5.5 million. The bulk of liquor money that is spent on lobbying efforts is earmarked for state rather than national politicians, since, according to Federal law, it's the states that control crucial issues such as taxes and ad regulations. More importantly, it's the states that can determine how and when alcohol is allowed to be distributed in each state. (In 2010, the American Beverage Institute spent $6.2 million fighting a minor change in the beer distribution rules of Washington state, a sum that exceeded its total lobbying efforts in Washington D.C. that year.)
 
The Washington-based American Beverage Institute (A.B.I.), one of numerous “front” groups run by corporate lobbyist Rick Berman, is one of the industry's most recognizable mouthpieces. Berman keeps his funders secret so his group can be “more vociferous, provocative and irreverent in its criticisms than a trade association,” according to anonymous food industry officials quoted in The Washington Post. Targets of such criticism include the organization Mothers Against Drunk Driving. Modestly styling itself as “a restaurant trade association dedicated to protecting the on-premise dining experience,” the A.B.I. campaigns against such measures such as in-car breathalyzer systems and a lower B.A.C. limit (promoting instead the slogan: “Drink responsibly, drive responsibly”). Implacably opposed to alcohol taxes, it lobbies politicians and runs a plethora of websites like NoDrinkTax.com, citing projected job losses and the burden on the poor as key reasons for their opposition to any tax hikes on their products.   
 
It’s a pretty safe bet that any attempt to increase alcohol taxes would be met by stiff resistance from both the liquor lobby and the most of the American public, who continue to be kept in the dark about the actual financial and societal costs of excessive drinking. The fact is, most American adults drink. And most drinkers are social drinkers rather than problem drinkers. Alcohol isn’t a problem for them, and their drinking isn’t a problem for anyone else. So it’s not hard for the alcohol lobby to get them angry at the prospect of paying higher taxes for what is, to them, a harmless pleasure.
 
But the alcohol-abusing minority—the 20% of those who drink who consume, on average, more than 60 drinks a month—account not only for the bulk of alcohol-related crimes, disease, and accidents, but also for the vast bulk of drinking. More than four drinks out of five are consumed by heavy drinkers, not social drinkers. And since most alcohol is largely purchased by a relatively small percentage of Americans, a tax on drinking is primarily a tax on excessive drinking rather than on social drinkers.
 
So even if we tripled the federal alcohol tax, a one-drink-per-day drinker would wind up paying a whopping $6 more per month. He or she would probably save that much or more in reduced health-insurance bills. There was once an ad for a premium brand of scotch that had it right: if the price difference bothers you, you’re drinking too much. If our politicians were really serious about controlling drug abuse, health care costs, and crime—and shrinking the federal deficit—they’d be lining up to propose higher alcohol taxes. Too bad they’re not.
 
Mark Kleiman is Professor of Public Policy at the UCLA Luskin School of Public Affairs and the editor of the Journal of Drug Policy Analysis.  His latest book, listed by The Economist as one of the “Books of the Year,” is When Brute Force Fails:  How to Have Less Crime and Less Punishment. His next book, Drugs and Drug Policy:  What Everyone Needs to Know, will be available from Oxford University Press in June.
 
Will Godfrey is Managing Editor of The Fix.
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