Sin Taxes on Alcohol Beverages: What You Need to Know

Taxes on alcohol beverages are often called “sin taxes.” Perhaps that’s a justification for raising them. The news is full of debates about increasing so-called .

But what’s sinful about alcoholic beverages? Absolutely nothing. Saint Thomas Aquinas said that no substance is sinful, “but only the misuse of it that makes it so.”

Healthful

Drinking beer, spirits and wine in moderation is associated with better health and greater longevity than either abstaining from it or abusing it.

sin taxes on alcoholPerhaps abstaining from alcohol or abusing it might sometimes be considered unhealthful. However, few would consider such behaviors sinful.

Raising taxes on alcohol doesn’t reduce its abuse nor does it reduce underage drinking. Underage drinkers generally get most of their supply from others and don’t pay for it. Research repeatedly demonstrates this.

Tax Differences

Differences in alcohol taxes between states or localities often leads consumers to cross state or county lines. This benefits places with lower taxes. Also, people often buy other products. This magnifies the economic benefits to lower tax areas.

sin taxes on alcoholPeople in dry areas can drink alcohol if they wish, they simply can’t legally purchase alcoholic beverages in such places. Therefore, the question for voters in dry areas isn’t whether or not people will drink there. It’s who will get the profits, taxes and other economic benefits.

Jackson County in Alabama remains dry but three of its cities permit alcohol sales under the state’s local option law. Recently the county decided to tax alcohol sales within the three wet cities. However, the Alabama Attorney General’s office has issued a ruling that only wet counties can tax alcohol sales. By remaining dry the county must forego the economic benefits of the alcohol sales.

Just as the entire nation learned during national Prohibition, being dry comes at a high price.

At the extreme are places that don’t sell alcohol at any price. That is, areas of prohibition. This leads to the existence of oases that exist because they sell (or sold) alcohol. For example, South of the Border in South Carolina. Or Impact, Texas. Or White Clay, Nebraska.

Effects of Tax Differences

Imagine shopping for alcoholic beverages in a store, unaware that The State Police are secretly spying on you. So you pay for your purchases and leave. But as you cross the border going home, the Police bust you. You may avoid imprisonment, but your purchases are confiscated and you feel violated.

sin taxes on alcoholYou were shopping in a state store in the Ukraine and you returned home to Belarus? Not exactly. You are a resident of Pennsylvania who was taking advantage of the lower prices, better selection, and better service. These are all available in neighboring state.

However, the Pennsylvania Liquor Control Board doesn’t want residents to escape its monopoly and enjoy the fruits of competition.

Monopoly

All alcoholic beverages in Pennsylvania must by law be purchased from the state’s monopoly stores operated by the Control Board. But many customers describe them as similar to a state store in the former Soviet Union. They have high prices, poor selection, and indifferent clerks. Additionally, there is an onerous 24% state tax on top of federal and other taxes.

Not surprisingly, customers near states with no monopoly find better selection and service plus lower taxes in border states.

The state monopoly doesn’t like this “border bleed.” Yet monopolies abhor the idea of competition. That’s why the Control Board tries to control residents by spying on them and intimidating them.

Perhaps the Liquor Control Board thinks that it’s protecting and serving Pennsylvanians. But apparently many residents don’t agree.

Regressive Taxes

sin taxes on alcoholBeverage alcohol taxes are regressive. That is, they fall most heavily on those who are least able to afford them. Thus, they’re unfair and unjust.

Alcohol taxes are more properly referred to as hospitality taxes, because they tend to harm lower-income hospitality workers. It is largely these relatively powerless laborers who are victimized by loss of income and even jobs.

So perhaps we should call alcohol taxes regressive anti-worker taxes. That’s clearly more accurate than “sin taxes.”

Resources: Sin Taxes on Alcohol Beverages

Web Pages

Alcohol Taxes: Federal & State.

Taxes and Prohibition: Taxes and Repeal (Effects of Taxes & Sources).

Alcohol Smuggling Costs Taxpayers.

Readings

Burman, L. and Slemrod, J. Taxes in America. What Everyone Needs to Know. Oxford: Oxford U. Press, 2013.

Slemrod, J. and Bakija. Taxing Ourselves. A Citizen’s Guide to the Debate Over Taxes. Cambridge, MA: MIT Press, 2017.