Fact Sheet about Beer Taxes
Alcohol Taxes in the U.S. are Low and Lag Far Behind Inflation
The relative cost of alcoholic beverages 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; the price of liquor has fallen almost 50 percent over the past five decades. The federal excise tax rates resulting from the 1991 tax increase are approximately $0.05, $0.035, and $0.11 per drink of beer, wine, and liquor, respectively. These tax increases failed to account for the effects of inflation in the last half century. For example, the tax on distilled spirits would have to increase to approximately $8.80 per fifth of 80-proof liquor (i.e., approximately four-fold higher) to have the same real value it had in 1951, the last increase before 1986. Similarly, the tax on beer would need to increase to $1.15 per six-pack (from its current level of approximately $0.33) to offset inflation since 1951.
Alcohol-Tax Increases Have Been Rare and Modest
The tax on distilled spirits remained at $10.50 between 1951 and 1985, when it rose to $12.50 per proof gallon. Under the Revenue Reconciliation Act of 1990, liquor taxes again went up in 1991 to $13.50 per proof gallon, their current rate. Under the same Act, federal taxes rose for the first time in 40 years to $18.00 per 31-gallon barrel of beer (up from $9.00 per barrel) and $1.07 per gallon of wine (up from $0.17 per gallon).
Alcohol Tax Cuts Would Harm Public Health and Safety and Increase Underage Drinking
According to research reported by the National Institute on Alcohol Abuse and Alcoholism, increasing beer prices is an effective means of reducing alcohol problems. Higher alcohol taxes lead to reductions in the levels and frequency of drinking and heavy drinking among youth,1 lower traffic crash fatality rates (especially among young drivers),2 and reduced incidence of some types of crime.3 Logically, lower beer taxes will likely lead to higher levels and frequency of drinking among youth and add to traffic crash fatalities. Researchers at the National Bureau of Economic Research estimate that if alcohol taxes had kept pace with inflation since 1951, the number of youth who drink beer would have declined by 24 percent.4
Costs of Alcohol Use Already Far Exceed Alcohol Tax Revenue
The economic and social costs of drinking already far exceed alcohol tax revenues. 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.5 Alcohol causes as many as 105,000 deaths annually in the United States6 and contributes to a wide array of health problems and human suffering. These include various cancers, liver disease, alcoholism, brain disorders, motor vehicle crashes, violence, crime, spousal and child abuse, drownings, and suicides.7
Federal tax revenues from alcoholic beverages totaled nearly $7.7 billion in 2001.8 The brewing industry's proposed 50 percent beer-tax cut would rob the U.S. treasury of about $1.75 billion each year, while the liquor producers' proposed 22 percent cut would cost the treasury an additional $860 million.
Such cuts cannot be justified at a time when the federal deficit is projected to soar to near record levels of more than $200 to $300 billion in the next two years.
Most Drinkers Don't Drink Much and Alcohol Taxes Don't Burden Them
The top 20 percent of drinkers consume 85 percent of all alcoholic beverages.9 Therefore, the remaining 80 percent of moderate drinkers consume, on average, relatively little alcohol and pay a negligible amount of alcohol taxes. The federal excise tax falls on heavy drinkers who appropriately assume a greater share of the cost of problems caused by their drinking.
Public Opinion Does Not Support Alcohol Tax Cuts
By a two to one margin, Americans oppose rolling back the federal excise tax on beer, according to a 2001 national poll conducted for CSPI and MADD.10 The vast majority of Americans – 71 percent – would support increasing the national beer tax a few cents per bottle to equal the tax on liquor, if the funds were used for substance abuse prevention. The poll also found that 75 percent of Americans believe that a beer-tax cut would benefit the beer industry more than consumers. About 77 percent of drinkers agreed.11
The Alcoholic-Beverage Industry Grossly Exaggerates the Economic Impact of Tax Increases
Brewers and distillers assert that alcohol tax increases would cause massive job losses and harms to their industries, and they wildly overstate "hardships" caused by the 1991 beer tax increase. Government data fail to support such claims. In fact, according to the Bureau of Labor Statistics of the U.S. Department of Labor, 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). Jobs at the manufacturing level fell, but this decline began decades earlier, in response to producer consolidation and automation. Beer sales have grown steadily over the past 15 years, from $40.2 billion in 1986 to nearly $70 billion in 2001.
Producers Care about Profits, Not Consumers
Alcohol producers are prospering, and despite assertions that the tax cuts would lower prices for consumers, they have not hesitated to raise prices periodically to maximize their own profits. Producers aren't concerned about average drinkers, because they know that most of their revenue comes from price-insensitive heavy drinkers. While the U.S. economy sags, Anheuser-Busch continues to enjoy healthy profits. The company, which sells nearly half of all beer in the U.S., has had 17 straight quarters of earnings-per-share growth. Anheuser-Busch's stock rose 7 percent during 2002 — while the Dow Jones industrial average sank roughly 17 percent and had its worst yearly decline in a quarter-century.
1. Coate, D. & Grossman, M. (1988). "The effects of alcoholic beverage prices and legal drinking ages on youth alcohol use." Journal of Law and Economics. 31(1):145-171.
2. Ruhm, C.J. (1996). "Alcohol policies and highway vehicle fatalities." Journal of Health Economics. 15(4):435-454.
3. Cook, P. J. & Moore, M.J. (1993). "Economic perspectives on reducing alcohol-related violence." In: Martin, S.E., ed. Alcohol and Interpersonal Violence: Fostering Multidisciplinary Perspectives. National Institute on Alcohol Abuse and Alcoholism Research Monograph No. 24. NIH Pub. No. 93-3496. Rockville, MD: the Institute, pp. 193-212.
4. Grossman, M. et al. (1994). "Effects of Alcohol Price Policy on Youth: A Summary of Economic Research." Journal of Research on Adolescence. 42(2):347-364.
5. 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.
6. McGinnis, J.M. & Foege, W.H. (1999). "Mortality and morbidity attributable to use of addictive substances in the United States." Proceedings of the Association of American Physicians. 11(2):109-118.
7. 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.
8. Congressional Budget Office. (2001). Budget Options. February 2001, Chapter IV.
9. Rogers, J.D. & Greenfield, T.K. (1999). "Who Drinks Most of the Alcohol in the U.S.? The Policy Implications." Journal of Studies on Alcohol. 60(1).
10. MADD/CSPI Nationally Representative Poll conducted by Penn, Schoen, Berland & Associates, Inc. July and August 2002.
11. MADD/CSPI Nationally Representative Poll conducted by Penn, Schoen, Berland & Associates, Inc. July and August 2002.
Data updated April 27, 2004
Center for Science in the Public Interest
Alcohol Policies Project
1220 L St. NW, Suite 300
Washington, DC 20005
Phone: 202-332-9110 * Fax: 202-265-4954 * Web: www.cspinet.org/booze