Friday, December 28, 2007
New York Times
December 26, 2007
Let’s Raise a Glass to Fairness
By DAVID LEONHARDT
Each of the three taxes is now effectively 33 percent lower than it was in 1992. Since 1970, the federal beer tax has plummeted 63 percent. Many states taxes have also been falling.
At first blush, this sounds like good news: who likes to pay taxes, right? But taxes serve a purpose beyond merely raising general government revenue. Taxes on a given activity are also supposed to pay the costs that activity imposes on society. And for all that is wonderful about wine, beer and liquor, they clearly bring some heavy costs.
Right now, the patchwork of alcohol taxes isn’t coming close to covering those costs — the costs of drunken-driving checkpoints, of hospital bills for alcohol-related accidents and child abuse, and of the economic loss caused by death and injury. Last year, some 17,000 Americans, or almost 50 a day, died in alcohol-related car accidents. An additional 65,000 people a year die from other accidents, assaults or illnesses in which alcohol plays a major role.
Mr. Cook, besides being a wine lover, has been thinking about the costs and benefits of alcohol for much of his career, and he has come up with a blunt way of describing the problem. “Do you think we should be subsidizing alcohol?” he asks. “Because that’s what we’re doing.”
What’s especially unfortunate is that several states are now considering raising their general sales tax, the one that applies to most retail items, to deal with budget problems. Last month, Maryland increased its sales tax to 6 percent, from 5 percent. Georgia and Indiana are also looking at increases.
These tax increases would raise the price of a huge array of items — winter coats, dictionaries, Ella Fitzgerald CDs, you name it — that leave no social costs in their wake. Relative to alcohol, they are already overtaxed.
There’s a better way to go, and it’s staring us right in the face. At the same time that the Maryland Legislature raised the state sales tax, it also doubled its tobacco tax, to $2 a pack. Across the country, tobacco taxes have been soaring in recent years.
The argument for higher tobacco taxes is simple enough. They help pay Medicare and Medicaid bills for tobacco-related illnesses and also lead to a decline in smoking. On average, a 10 percent increase in the price of cigarettes causes about a 5 percent drop in smoking, studies show. Not even addiction, it turns out, can overcome the laws of supply and demand.
If anything, the argument for higher alcohol taxes is even stronger. Tobacco kills many more people than alcohol, but it mainly kills those who use the product. Many alcohol victims are simply driving on the wrong road at the wrong time. Many are also quite young.
Politically, though, the case for alcohol taxes is harder to make, because drinking is so much more socially acceptable than smoking. In many places — like Mr. Cook’s house and mine — a glass of wine or a beer is a standard part of dinner. Nationally, about 25 percent of people have at least one drink a day, and 40 percent drink occasionally.
Those of us in this drinking majority tend to assume that we’re not the ones who will create problems. As Jeff Becker, the president of the Beer Institute, an industry group, told me, “Most people — the vast majority of consumers — don’t impose any additional costs on anyone.”
Which may well be true. And if it were somehow possible to tax only those people who were going to drive drunk in the future, it would be a wonderful idea. (Then again, we might just want to take away their driver’s licenses.) Barring clairvoyance, though, raising alcohol taxes from their current lows seems to be the fairest solution.
Mr. Cook has written a wonderful little book, “Paying the Tab,” making this case. In it, he draws on history, political philosophy and straight economics to point out that higher alcohol taxes would fit squarely in the American tradition.
Unlike Prohibition — or stricter minimum-age drinking laws — a reasonable tax would still allow people to make their own choices about drinking. They would simply be asked to pay the true cost of the product they’re buying.
At a minimum Mr. Cook suggests raising beer and wine taxes (which are now about 7 to 10 cents a drink) to the level of liquor taxes (more than 20 cents a drink) and then indexing them all to inflation. This would be an especially good time for the change, because drunken-driving deaths — which fell rapidly after the start of public-service campaigns in the 1980’s — have plateaued.
History shows that even a modest price increase will lead to a decline in drinking. When drinking has fallen in the past, drunken driving and the incidence of cirrhosis and sexually transmitted diseases have declined, too. So a tax increase would probably save thousands of lives.
The companies making wine, beer and liquor would fight this, of course. They would argue that higher taxes would destroy jobs in their industry. That’s just a scare tactic — the money that was no longer being spent on alcohol would instead be spent on other products. Opponents might also point out that alcohol taxes fall more heavily on the poor and middle class. That’s correct, but saving lives is more important.
In any event, people who have studied the issue and don’t have a financial stake in it tend to agree with Mr. Cook. “Taxes are way too low on alcohol,” Jonathan Gruber, an economist at the Massachusetts Institute of Technology, says. “It’s a public-policy failure.”
That sounds like grist for a 2008 resolution: I hope everyone has a happy New Year and gets a chance to drink something good Monday night, whether it’s Champagne, Prosecco or a sparkling wine from Spain, South Africa or even New Mexico. And sometime soon, I hope none of them come with such an artificial discount.
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