Frank Bernheisel: The View From Here
Frank Bernheisel
Frank Bernheisel
Posted 12.7.17
Just Outside Washington


Fixing the American booze tax mess

The U.S. tax reform bill introduced in Mitch McConnell's Senate in November includes deep cuts to federal excise taxes on alcohol producers. Does this have anything to do with Kentucky being a major producer of bourbon whisky?

I started to write about alcohol taxes a couple of years ago but got bogged down because the subject is complicated. Adam Looney of Brookings has laid it all out and included much more about the externalities (cost of alcohol related illness, car accidents of drinking and higher crime rates) than I would have -- see link. I enjoy my wine too much.

Let's clear up some terminology first. The tax bills being entertained in Congress are not 'Tax Reform.' The purpose of taxes is to raise revenue; the bills in Congress will add $1.5 Trillion to the federal deficit. The GOP says their bills will cause growth, eliminating the deficit. That's BS, just look at the recent experience in Kansas.

Also, one would think that the purpose of 'Reform' was to make things simpler, and in the case of taxes, fairer. But, as Looney points out, the proposal would make things more complex and pick 'winners and losers.' Where did we think all those regulations came from?

The current tax rates on alcoholic beverages have not been increased since 1991. Because, they are not indexed for inflation, their revenues have fallen by an average of 36 percent in real terms since 1991. Looney has a chart that shows this. One would think that an alcohol tax would tax -- well, alcohol. Our current tax structure seems to think that some alcohol is better/worse than others.

Alcohol in still wine, (14 percent alcohol or less), is taxed at $4.90 per proof gallon, while naturally sparkling wine is taxed at $14.17 per proof gallon (a data table is in Looneys piece). In a rational world, one would think that any gallon of alcohol would have the same tax.

They say that making laws is messy, like making sausage. What the Congress is up to is definitely messy and unlike making sausage, the end product will not taste good.