NABCA Board Meeting

Paying the Tab:

The Case for Higher Alcohol Taxes

Philip J. Cook

Duke University

January 10, 2009

Portfolio of Alcohol Policies

Complex problem, multifaceted solutiono Treatment, educationo Policies for risky circumstances

(DUI, pregnancy, work)o Harm-reduction policieso Supply side policies (“alcohol control”):

tax, minimum age, marketing, licensing

The main argument

One important instrument has been neglected

Alcohol is too cheap Best solution: raise excise taxes

Two mechanisms for improving the public health through tax

The excise-tax revenue could be earmarked for prevention

Higher taxes higher prices

reduced use and abuse

regardless of how revenues are spent

Recent trendsComparing Real Federal Tax Rates for

Beer, Wine and Liquor 1970-2008

0

5

10

15

20

25

30

35

40

45

50

55

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Year

Tax

Rat

e (c

ents

per

oz.

of

eth

ano

l) Beer Tax Wine Tax Spirit Tax

Comparing Real Federal Tax Rates for Beer, Wine and Liquor 1970-2008

0

5

10

15

20

25

30

35

40

45

50

55

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Year

Tax

Rat

e (c

ents

per

dri

nk)

Beer Tax Wine Tax Spirit Tax

Retail prices trending down

CPI change for package sales, 25 years

All alcohol: - 11.7%

Spirits: -12.3%

Beer: - 8.8%

Meanwhile, remarkable decade in cigarette excise taxation

1998 – 2008

Federal excise tax per pack:

$.24 $.39

State excise taxes

41 states raise tax rate by > $.25

(11 states increase by more than $1.00)

Excise Tax Revenues

Federal

$billions

State

$billions

Total

$billions

Cigarettes 7.5 14.0 21.5

Alcohol 8.9 5.2 14.1

Tobacco as an inspiration

Cig taxes are now fair game for states and cities

Justified as public-health measure

No carryover to alcohol taxes. Why? Size of problem? Strength of evidence on efficacy? “Lessons” of Prohibition?

The wrong lesson

The “Great Experiment”

This ‘dreadful example’ is now so firmly established that it has become a maxim of popular culture, a paradigm of bad social policy, and a ritual invocation of opponents of a variety of sumptuary laws

Aaron and Musto 1981

Prohibition & Drinking

1911-14

Local bans

1918-19

Wartime limits

1921-22

Volstead

1927-30

Volstead

Ethanol gals.

1.69 0.97 0.73 1.14

Cirrhosis mortality

rate

13.9 9.3 8.0 8.2

Prohibition’s differential impact by class and location

Alcohol-related mortality drops sharply for working class

Martha Bensley Bruère’s survey of social workers

(National Federation of Settlements)

Good evidence on alcohol control and outcomes

“Indeed, the forty-eight states will constitute a social science laboratory in which different ideas and methods can be tested, and the exchange of experience will be infinitely valuable for the future.” {Fosdick & Scott 1933: 150}

30 years of research: Higher taxes save lives

Reduce alcohol sales and binge drinking

Reduce highway fatalities (stronger effect for youths)

Reduce rate of STD transmission (stronger effect for adolescents)

Reduce youth suicide rates (under age 24)

Reduce cirrhosis mortality rate

Reduce robbery and rape

How high for excise tax rates?

Public health standard: higher is better

Historical standard $1.68 federal tax on fifth of 80-proof spirits, 1951$13.50 equivalent today $ 2.16 actual tax today

Fairness standardExcise tax is “user fee” or “insurance premium” for

public costs

Who pays the excise tax? Distribution of drinking

Source: 2001-2 NESARC

Number of Drinks Consumed in the Past Month by Decile

0 0 0 0.1 0.6 2.7 9.326.8

65.5

316.5

0

100

200

300

400

1 2 3 4 5 6 7 8 9 10

Decile

Num

ber

of D

rinks

(Almost) everyone comes out ahead

Suppose we raise federal alcohol tax by 10 cents per drink.

Average is ~600 drinks/year $60Suppose revenues are returned to public

on per capita basis About 93% of public would profit directlyAlso there would be additional widely

shared benefits (auto insurance rates)

Should liquor be taxed higher than beer?

Current federal tax:

Liquor: 21 cents/ounce of ethanol

Beer: 10 cents/ounce

History standard: Yes

Fairness: Probably not – beer is the drink of younger men

Unintended consequences of raising taxes?

Substitution to other substances? NO(Marijuana and tobacco are more likely to be

complements)Re-Creation of a black market? NO(Not a serious problem, even in 1950s)Decline in healthy drinking? DOUBTFUL(Middle aged folks break even)Economic burden? NO(No job loss on balance.)

F. Conclusion

Alcohol is our leading “drug” problem The full policy portfolio should be utilized Evidence has accumulated over the last

25 years on efficacy of alcohol taxes Higher prices will encourage “voluntary

self-control” and raise our overall standard of living