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MD could serve as alcohol tax hike role model

The Gazette
May 28, 2011

By Alan Brody

Nicole Holt has advocated for years that increasing the alcohol tax would improve the lives of youngsters and forestall difficult budget decisions.

Problem is, the executive director of Texans Standing Tall hasn’t had much success gaining legislative traction for the issue in what is generally considered a tax-averse state.

“When it has the word ‘tax’ attached to it, it’s very difficult,” said Holt, who has led the nonprofit statewide coalition since 2005. “We have a legislature who is not interested in doing anything but lowering taxes.”

But supporters of higher levies on alcoholic beverages from coast to coast are emboldened by the successful effort in Maryland this year and say it maps out an uncommon approach that could work in other states.

State lawmakers voted to hike the sales tax, effective July 1, on alcoholic beverages from 6 percent to 9 percent, instead of imposing a higher excise tax on wholesalers that was initially proposed. Most states assess a tax on alcoholic beverages at both the wholesale and retail levels, but recent efforts to boost revenues have centered on increasing the excise tax.

And almost all have failed.

One exception is Massachusetts, which increased its sales tax from 5 percent to 6.25 percent in 2009 and lifted an exemption on alcohol sold in liquor stores. But voters narrowly approved a referendum the following year that repealed the sales tax on alcohol.

Of the 23 states that weighed legislation in 2010 to increase the tax on alcohol, none succeeded, said David H. Jernigan, an associate professor at Johns Hopkins Bloomberg School of Public Health.

So far in 2011, Maryland is the only state to approve an alcohol tax measure, he said.

“Those of us who are standing back watching Maryland not only get to say ‘Kudos,’ but we can say ‘A-ha!’ ” said Diane Riibe, executive director of Project Extra Mile, a statewide network of community coalitions in Nebraska working to prevent underage drinking.

When an excise tax is in place, the cost is typically built into the shelf price. A sales tax increase is simply calculated at the register and is not subject to commercial markups.

Either way, consumers pay more.

Nebraska last raised its excise tax on alcohol, which is paid by the gallon, in 2003. It is also subject to the 5.5 percent state sales tax.

Advocates are laying the groundwork to make another push for raising the levy, Riibe said. The Omaha World-Herald editorialized earlier this month that the state’s unicameral legislature should debate the issue in an effort to combat drunken driving.

Any conversation of an alcohol tax increase should start with the sales tax, not the excise tax, Riibe said.

“It is the default discussion, and it probably henceforward should not be,” she said of the wholesale levy. “Maryland helped to pave the path [for increasing the sales tax], and I think it ought to be a discussion that states should have.”

One reason is because increasing the sales tax keeps pace with inflation, whereas the excise tax does not since it is based on a fixed variable: fluid volume rather than price.

To wit, the last alcohol excise tax increase in California in 1992 equaled only a penny on a glass of wine and two cents per can of beer and shot of liquor. But factored for inflation, total revenues have slumped by 33 percent since that time, according to the Marin Institute, an alcohol industry watchdog.

“That penny a drink now is long gone in terms of its bite in inflation,” said James F. Mosher, president of Alcohol Policy Consultations, a research firm based near San Jose.

Even so, it’s wrong to expect a tactical overhaul, one analyst said.

“I’m just not convinced that it’s an easier play politically,” Michele Simon, research and policy director at the San Rafael, Calif.-based Marin Institute, said of the sales tax approach. “I just think it’s hard no matter what. Anyone who thinks, ‘Oh gee, now we do it as a sales tax and we’re home free’ — forget it.”

The current anti-tax climate and the powerful liquor lobby in many state capitals are the biggest hurdles facing supporters of alcohol tax hikes, experts said.

“The politics are just so impossible for any type of regulation,” Simon said.

Even New York, which is led by Democratic Gov. Andrew M. Cuomo and is regarded as one of the more liberal states in the nation, didn’t entertain tax hike proposals this year.

“We’re kind of getting our sea legs here. We realize that it’s a difficult year,” said Robert S. Pezzolesi, who heads the New York Alcohol Policy Alliance, a year-old state advocacy organization based in Syracuse.

Still, he said the time will come for a strong alcohol tax increase push in the Empire State.

“I’m intrigued by what was done in Maryland, and that’s something we’ll definitely look into,” Pezzolesi said.

Indeed, Maryland’s approach — using the sales tax as a vehicle to generate $87 million in projected new revenues — can be a more politically palatable model in other states, Mosher said.

“It gives us a new approach to the alcohol tax issue that has some real benefits and maybe can unlock some of the barriers that we’ve been facing with the excise tax proposals,” he said. “It gives us another model for how to increase the tax that is self-correcting in the sense that as inflation goes up, the tax goes up.”

The battle in Texas, which hasn’t raised taxes on alcoholic beverages in more than two decades, is likely to remain an uphill climb because Republican lawmakers who generally oppose tax hikes picked up more seats in last year’s election. Meanwhile, lawmakers have discussed extending taxes or fees on soda machines and vehicle registration.

“Momentum for addressing the issue has certainly increased, especially at a time when services for [drunken-driving] prevention and education are being cut without much consideration to what the impact will be to our pocketbooks,” Holt said.