It has been 87 years since ratification of the 21st Amendment to the Constitution ending the nationwide prohibition of alcohol prohibition in the United States.  Yet all 50 states still have measures that attempt to reduce or deter alcohol consumption with regulations and taxes on how alcohol is produced, purchased, and sold.  These measures are also designed to generate revenue.

The most common tax on alcohol sales is the excise tax, otherwise known as a “sin tax.”  These taxes also apply to tobacco purchases, and where legal, gambling and recreational marijuana.  Excise taxes not only differ across states and counties, but they also differ as to how much alcohol is included in the beverage being taxed, whether it is imposed on the price or quantity of the beverage.

Proponents of the excise tax also generally believe that it will deter the demand for alcohol products through increased prices, while generating additional revenue for the state that can be used to counter the negative effects of alcohol abuse.  They posit that individuals may consume alcohol as long as they pay for the supposed harm such consumption poses on society.

Unfortunately, there are many problems with this assumption.  First, not all consumers of alcohol impose a cost on society.  An individual may choose to drink a cold beer or a whiskey on the rocks without creating harm to anyone.  However, another person, who drinks 10 beers, or a whole fifth of whiskey, and chooses to get behind the wheel of a vehicle most definitely does create risks.  One could argue that the first person should not have to pay for the second person’s poor choices.

There is not always a correlation between high excise taxes and a reduction in alcohol abuse.  For example, Washington has above average excise taxes but below average rates of excessive drinking, while Maryland has below average excise taxes on alcohol and below average rates of excessive drinking. 

Washington also has strict and unclear alcohol regulations, which essentially give big-box stores like Costco a monopoly on liquor sales.  In order to sell liquor, stores must be more than 10,000 square feet.  The normal footprint of a grocery store is around 4,000 square feet.  These regulations were imposed when Washington privatized liquor sales in 2011, a move that was backed by Costco.  Legislation had been introduced in the Washington General Assembly, HB 2204, which would have allowed for the sale of liquor in stores smaller than 10,000 square feet if they already sold beer or wine, but this proposal was rejected.

There are 18 states that have enacted an impediment to alcohol sales on top of excise taxes by creating a state government monopoly on the sale of spirits.  These “control states” either have control over the wholesale distribution and sale of liquor or control over the wholesale and retail sale of liquor.  Either way, the lack of competition in the marketplace results in higher liquor prices for consumers.

In the control state of Pennsylvania, Governor Tom Wolf (D) has consistently shot down efforts to privatize the state’s liquor sales.  Yet, during the heat of the COVID-19 pandemic, he ordered state-operated liquor stores to close, which not only left residents with nowhere to buy liquor (other than to cross into neighboring states where feasible), it also cost the Pennsylvania Liquor Control Board more than $200 million.

Utah is another control state, where prior to 2019, liquor was defined as containing an alcohol by volume (ABV) rate of 4 percent.  In 2019, the ABV rate was increased to any beverage containing an ABV exceeding 5 percent. This means if Utahns want to purchase a beverage with an ABV rate of 8 percent or more, they would have to purchase it from their state government.

There is an ongoing debate over why states should have a stake in what residents are allowed to drink and how much they should be taxed.  More states should be examining whether high taxes reduce alcohol consumption and stop controlling the distribution and sale of alcohol, which would provide more choices and competition.

--Will Blakely