Myths & Facts about Beer Taxes

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Myth:

Forty-four percent of the retail price of beer is now consumed by taxes.

 

Reality:

The "44 percent" calculation deceptively includes sales tax, federal income and payroll taxes, state and local income, payroll and other levies.  The federal excise tax on beer amounts to about a nickel per drink -- less than seven percent of the average price of a six-pack.  In fact, the relative cost of beer has declined dramatically in the past 50 years.  Even with a Federal tax increase in 1991, the average price of beer has fallen by more than 25 percent relative to the Consumer Price Index.  Had the tax kept up with inflation over the past 50 years, today's $18 per-barrel tax would total approximately $63.69, or $1.15 per six-pack, more than three-and-one-half times the current rate.

 

Myth:

Middle and lower-income Americans, who comprise the vast majority of our nation's 90 million beer drinkers, cannot afford this tax on one of their few 'luxuries.'  Those who indulge in the "luxury" of purchasing beer are now among the most heavily taxed people in our society.

 

Reality:

Producers are not concerned about "average" drinkers, because they know that most of their revenue comes from price-insensitive heavy drinkers.  Heavy and addicted drinkers -- who account for most of the beer consumption in the U.S. -- rightly pay most in beer taxes since their drinking imposes the greatest costs on society.  The heaviest-drinking five percent of beer drinkers consume 42 percent of reported beer consumption.1  The moderate-drinking majority of drinkers consume, on average, relatively little alcohol and pay a negligible amount of alcohol taxes.

 

The Congressional Budget Office (CBO), in a 1990 report on tobacco, alcohol and gasoline taxes, found that expenditures on alcohol represented similar percentages of total family expenditures across income classes (among families that purchase alcohol).  According to the CBO report, "The budget share for alcoholic beverages actually rises with adjusted family income: families in the lowest income quintile spend 1.5% of their budget on alcoholic beverages, while families in the middle income quintile spend 2.0% and families in the highest quintile spend 2.3%."  The report further stated that, "These results suggest that, to the extent that annual family expenditures rather than annual family income better reflect lifetime income, expenditures on alcohol are progressive" (emphasis added).

 

If beer marketers are so concerned about low-income consumers, why do they continually raise prices on their own to increase profit margins?  Last Fall, for example, Anheuser-Busch increased U.S. beer prices and recorded an 8.9 percent jump in fourth-quarter profits.

 

In fact, no one but the beer industry favors reducing beer taxes.  Beer taxes are popular, and large majorities actually support increasing the tax.  Nearly 82 percent of adults favor an increase of five cents per drink in the tax on beer to pay for programs to prevent minors from drinking and to increase alcohol treatment programs.2

 

Myth:

The 1991 increase in the Federal beer tax has destroyed 31,000 jobs, and has prevented people from enjoying the 'luxury' of beer drinking.

 

Reality:

Government data don't support the beer industry's exaggerated job-loss assertions.  According to the Bureau of Labor Statistics, between 1990 and 2000, beer industry wholesale trade employment rose by more than 8,000 jobs, including increases between 1990 and 1992 (a year before and after the tax increase).  Moreover, this job gain in the beer industry came during a period of significant job losses due to the 1990-1992 recession.  In addition, even if job losses should occur in the beer industry, those jobs would not simply disappear, but would shift to other sectors of the economy.

 

Myth:

As a result of the 'luxury tax' on beer, $463 million in wages has been lost in the brewing, wholesaling, and retailing industries.  In addition, direct purchases of products needed to make beer, including agricultural products, have fallen by $207 million.

 

Reality:

The beer industry has hardly been hurt by the 1991 excise tax increase.  In fact, it is one of the few industries that is thriving despite a slumping economy.  The industry recorded its sixth straight annual profit gain in 2001, according to Adams Beer Handbook 2002.  Anheuser-Busch's stock rose seven percent during 2002 -- while the Dow Jones industrial average sank roughly 17 percent and had its worst yearly decline in a quarter-century (Anheuser-Busch produces almost half the beer sold in the U.S.).

 

Myth:

The 1991 increase in the Federal beer tax has not resulted in a doubling of Federal revenues.  To the contrary: the decline in demand, the resultant loss of jobs, and the reduction of direct purchases has cost Federal and state governments hundreds of millions of dollars in lost tax revenues.  The 'luxury tax' on beer has cost millions more in increased outlays for unemployment compensation and other social services to help those who were put out of work by the tax increase.

 

Reality:

These assertions are wildly exaggerated and not supported by any real evidence.  Federal excise taxes on beer generated some $1.7 billion in 1990, rising to $3.55 billion in 2001.  The beer market has increased, not decreased in the past decade, even as brewers have arbitrarily raised prices on their own to maximize profits.  Furthermore, any decrease in sales and consumption would likely result in a decline in alcohol problems and significant savings in related health and safety costs (alcohol problems cost American society more than $184 billion in 1998 in health care, criminal justice, social services, property damage, and loss of productivity expenses).3

 

Myth:

Because of the regressive nature of the 'luxury tax' on beer, its negative impact on the economy, and its unreliability as a source of Federal income, this 'luxury tax' should be repealed.

 

Reality:

Lower beer taxes would only add to the deficit, cater to a prosperous industry, reward and encourage heavy drinking, and attract more young drinkers, fueling increased alcohol problems and increasing public costs. The best interests of consumers, young people, and the public health and safety and the young people of America would be better served by raising, not lowering beer taxes.

 

 

References:

1.  Rogers, J.D. & Greenfield, T.K. (1999).  Beer drinking accounts for most of the hazardous alcohol consumption reported in the United States.  Journal of Studies on Alcohol.  60(6):732.

2.  Harwood, E.M., Wagenaar, A.C., & Zander, K.M. (1998). Youth access to alcohol survey: Summary report. Princeton, NJ: Robert Wood Johnson Foundation.

3.  Harwood, H. (2000).  "Updating Estimates of the Economic Costs of Alcohol Abuse in the United States: Estimates, Update Methods and Data."  Report prepared by the Lewin Group for the National Institute on Alcohol Abuse and Alcoholism.  National Institute on Alcohol Abuse and Alcoholism. (2000).  "Drinking over the life span: Issues of biology, behavior and risk."  In: 10th Special Report to the U.S. Congress on Alcohol and Health.  Bethesda, MD: U.S. Department of Health and Human Services, pp. 1-66.

 

Data updated April 27, 2004

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Factsheet on alcohol excise taxes

 

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Center for Science in the Public Interest

Alcohol Policies Project

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Washington, DC  20005

Phone: 202-332-9110 * Fax: 202-265-4954 * Web: www.cspinet.org/booze