State finances are in bad shape thanks to the effects of the “Great Recession” and policymakers’ lack of spending restraint. According to the Center on Budget and Policy Priorities, 44 states are facing serious shortfalls in 2012, for a combined budget gap of $112 billion.
Maryland is one of those states in a precarious position, facing a projected budget shortfall of $1.4 billion for the coming fiscal year. But instead of taking responsibility for the consequences of past fiscal recklessness, the legislature is considering passing the buck by enacting a new tax on businesses and their customers with proposals that would increase tax rates on distilled spirits, wine and beer.
Naive claims that tax hikes on alcohol are “win-win” strategies for bridging budget gaps ignore their true effects on our economy.
An enduring myth is that additional tax burdens only bite the “big businesses” that pay them. But this is fiction. Alcohol taxes are passed onto consumers through higher prices on a six-pack of beer or a bottle of wine, causing pain for businesses large (breweries, wineries) and small (restaurants, mom and pop grocery stores).
Alternatively, the tax burden may be shifted onto beverage-industry workers themselves through reduced compensation and fewer jobs. The evidence bears this out. The last time the national beverage excise tax was increased, approximately 60,000 Americans in the brewing, distributing and retailing industries were forced into the unemployment lines. With state unemployment still at 7.2 percent, Maryland can hardly afford a policy that makes it even tougher to find work.
And the millions of casual drinkers in Maryland shouldn’t be forced to pay higher taxes because their representatives want to avoid the hard choices on budget reform.
Advocates of alcohol taxes claim that such a tax will limit the damage done by problem drinkers.
It’s true that individuals who regularly drink to excess might inflict harm on society, so a tax that reduces their alcohol consumption seems like a common-sense response. According to the National Institute on Alcohol Abuse and Alcoholism, however, raising beverage prices through an alcohol tax does little to deter consumption among the heaviest drinkers. Instead, studies indicate these taxes mostly cut consumption of light drinkers.
Worst of all, more taxes delay the day of reckoning states will eventually have to face. A tax on alcohol now just allows wasteful government programs to continue draining the public coffers and increases the likelihood of another new tax a few years down the line.
This “kick the can down the road” approach is no way to balance a state budget. That’s a sentiment we can all raise a glass to.
Michael L. Marlow is a professor of economics at California Polytechnic State University.