Alcohol Excise Taxes in Maryland
Facts About Maryland Alcohol Excise Taxes
The State of Maryland faces a deficit that will exceed $1 billion in fiscal year 2004. Over the next several years, facing continued decreases in revenues, the deficit will exceed $6 billion.1 The state Constitution requires that Maryland's budget be balanced. This can be done through cuts in services, increases in revenue, or a combination of both. Alcohol excise taxes are a source of revenue that should be seriously considered.
Maryland's alcohol excise taxes are among the lowest in the United States ($0.09 per gallon for beer, $0.40 per gallon for wine, and $1.50 per gallon for spirits). Only Wyoming ($0.02 per gallon), Mississippi and Wisconsin ($0.06 per gallon), Colorado, Kentucky, Missouri, Oregon, and Pennsylvania ($0.08 per gallon) have lower beer tax rates.2 Ten states have lower wine tax rates, ranging from $0.11 – $0.32 per gallon.2 And Maryland and the District of Columbia have the lowest liquor tax rate ($1.50 per gallon) in the United States.2
Comparing Maryland's Alcohol Excise Taxes with the Current National Average
Alcohol excise taxes provide millions of dollars in revenue to federal, state, and local governments. The excise tax rates and the amount of revenue vary widely between products and among states. The current Maryland alcohol excise tax rates are well below the national average.
Comparing Maryland's Alcohol Excise Taxes with Nearby States
Each of the states that surround Maryland collects revenues on the sale of alcoholic beverages. Pennsylvania, Virginia, and West Virginia are alcohol-control states, meaning the state maintains responsibility for the sale of distilled spirits. Each of these states includes a "mark-up" on the wholesale price of liquor that ranges between 18 and 21 percent of the wholesale price. In Pennsylvania, the price of wine also includes a mark-up. Delaware and the District of Columbia, like Maryland, collect an alcohol excise tax on the sale of all beer, wine and spirits sold in the state. Each state also charges other taxes and fees. Only excise taxes and product mark-ups are considered here.
Revenues from Alcohol Excise Taxes or Product Mark-ups for Maryland and Neighboring States
* Liquor control states. Receipts are for 2001.
Alcohol Taxes Compared with the Tobacco Tax
The excise tax on cigarettes in Maryland, a "tobacco state," is significantly higher and generates much greater revenue for the state than the total revenues from alcohol excise taxes.
Maryland Alcohol Excise Tax Rates Compared with the Tobacco Tax
The revenues produced by alcohol and tobacco excise taxes in Maryland vary greatly, as do their respective excise tax rates. The excise tax is much higher on tobacco, and the revenue produced is many times greater than the total alcohol excise taxes collected.
Comparing Maryland Alcohol Excise Tax Revenues to Tobacco Excise Tax Collections3
The Effects of Inflation on Tax Rates and Revenues
Alcohol excise tax rates have been increased infrequently during the past several decades, and have eroded with inflation. As a result, "real" tax rates have declined over most of the postwar period. This erosion of real tax rates has contributed to overall declines in real beverage prices over time.10
Inflation has greatly diminished the value of the Maryland alcohol excise tax rate since 1972 for beer and wine and 1955 for spirits. The beer excise tax of $0.09 per gallon is now worth $0.02 per gallon. The $0.40 per gallon tax for wine is now worth $0.10 per gallon, and the tax rate of $1.50 per gallon on liquor is now worth only $0.24 per gallon.
Indexing for inflation since the last increase in 1972, the current tax on beer ($0.09 per gallon) would be $0.38 per gallon today; the current tax on wine ($0.40 per gallon) would be $1.68 per gallon; and the current tax on distilled spirits ($1.50 per gallon), last increased in 1955, would be $9.50 per gallon today.
In 2001, the State of Maryland collected $24.5 million in alcohol excise taxes. When adjusted for inflation since the 1972 increase on beer and wine and 1955 increase for spirits, the $24.5 million has diminished to a value of $4.9 million. Conversely, had the beer and wine taxes been indexed for inflation since 1972 (1955 for spirits), the state would have collected as much as $128 million in 2001 revenue from alcoholic beverages.
Maryland's Alcohol Tax Rates and Revenues Have Eroded, Due to Inflation
The Effects of Inflation on Maryland's Beer-Tax Rate
Other Tax-Increase Options
Following are two options for increasing the alcohol excise tax on beer.
"A Nickel A 6-Pack"
When a consumer purchases a 6-pack of beer in Maryland, he/she pays about $0.05 in state alcohol excise tax. That amounts to less than one penny per can of beer. If the tax rose to $0.10 on a 6-pack of beer, it would generate approximately $8.2 million in new revenue.
This increase would raise the current beer tax of $0.09 per gallon to about $0.18 per gallon, an amount less than the national average and the inflation-adjusted rate.
“A Nickel A Beer”
The current tax on a can of beer is less than one penny. Were the tax increased to a nickel per beer, state revenue would rise to approximately $51 million, or about $42 million in new resources.
In this option, the current beer tax of $0.09 per gallon would increase to $0.53 per gallon. This amount would be above the national average and the inflation-adjusted rate.
Higher Alcohol Taxes Would Increase Prices and Reduce Alcohol Problems
According to research reported by the National Institute on Alcohol Abuse and Alcoholism, increasing alcohol prices is an effective means of reducing alcohol problems. Higher beer taxes would likely lead to higher prices11 and reductions in the levels and frequency of drinking and heavy drinking among youth,12 who are among the most price-sensitive consumers. Also, higher beer taxes would reduce traffic-crash fatality rates, especially among young drivers,13,14 and result in reduced incidence of some types of crime.15 For every one percent increase in the price of beer, the traffic fatality rate declines by 0.9 percent.16
According to researchers at the Centers for Disease Control, a beer-tax increase of 20 cents per 6-pack would reduce gonorrhea rates by 8.9 percent and syphilis rates by 32.7 percent.17
Public Opinion, Public Costs
In a national survey, nearly 82 percent of adults favor an increase of five cents per drink in the tax on beer, wine, or liquor to pay for programs to prevent minors from drinking and to increase alcohol treatment programs.18 In state surveys about alcohol excise taxes, 80 percent of Montana residents believe increasing alcohol taxes is "good" or "acceptable";19 and 78 percent of respondents in a survey of residents of Oregon supported an increase in the state alcohol excise taxes.20
In 1998, the estimated economic cost of alcohol abuse in the U.S. exceeded $184 billion. This cost is equivalent to roughly $683 for every man, woman and child living in the U.S.10 The cost to Americans of underage drinking alone totals nearly $53 billion.21 States and their tax-payers, including those in Maryland, bear a substantial portion of these costs.
Each year, the federal government spends nearly $1 billion on alcohol prevention services for people of all ages, less than 2 percent of the annual cost of alcohol use by youth alone.21
According to the Bureau of Alcohol, Tobacco and Firearms (now the Tax and Trade Bureau), federal excise tax collections for alcoholic beverages totaled more than $8 billion in 2000. Put into perspective, this amounts to just over 4 percent of the $184 billion in alcohol-related costs borne by the American public.
The following equation was used to calculate the projected volume consumed if the Maryland excise tax for beer were raised to the national average $0.24; a nickel a 6-pack or $0.18 per gallon; and a nickel a beer or $0.53 per gallon:
V1 = Vo (1 + PE (PI/CP))
Where: V1 = projected volume consumed
Vo = 2001 volume consumed
PE = price elasticity22
PI = price increase (including a 7.5 percent mark-up)
CP = current price
The price increase assumes a 7.5 percent mark-up (a conservative estimate23) on the tax increase. The current price was obtained by calculating that an average 6-pack of beer costs $4.86 or $8.65 per gallon. These numbers represent total retail sales of beer divided by the total volume of beer sold in the U.S. This same method can be localized using Maryland data, if available.
1. Maryland Budget & Tax Policy Institute. (2002). Balancing the Budget by Cutting Services: All Pain, No Gain. 3(2).
3. Tax Foundation Special Report #108: State Tax Collections and Rates, February 2002.
4. The Alcohol and Tobacco Tax Annual Report, Comptroller of Maryland, FY 2001.
5. Virginia Department of Alcoholic Beverage Control, FY 2001.
6. Calculations of revenue based upon data from Adams Spirit Book 2001 & Adams Wine Book 2001.
7. The Statistical Supplement for the Pennsylvania Tax Compendium, PA Department of Revenue. March 2002.
8. West Virginia Department of Tax and Revenue Annual Report FY 2001.
9. Delaware Department of Finance Annual Report 2001.
10. National Institute on Alcohol Abuse and Alcoholism (2000). 10th Special Report to the U.S. Congress on Alcohol and Health. NIH Publication No. 00-1583. Rockville, MD: U.S. Department of Health and Human Services, ch. 6.
11. Young, D.J. & Bielinska-Kwapisz, A. (2002). Alcohol Taxes and Beverage Prices. National Tax Journal. LV(1):57-74.
12. 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.
13. Ruhm, C.J. (1996). Alcohol policies and highway vehicle fatalities. Journal of Health Economics. 15(4):435-454.
14. Saffer, H. & Grossman, M. (1987). Beer taxes, the legal drinking age, and youth motor vehicle fatalities. Journal of Legal Studies. 16(2):351-374.
15. 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.
16. Markowitz, S. & Grossman, M. (1998). Alcohol regulation and domestic violence towards children. Contemporary Economic Policy. 16(3):309-320.
17. Chesson, H., Harrison, P. & Kassler, W. J. (2000). Sex under the influence: The effect of alcohol policy on sexually transmitted disease rates in the United States. Journal of Law and Economics, XLIII:215-238.
18. Harwood, E. M., Wagenaar, A. C. & Zander, K. M. (1998). Youth access to alcohol survey: Summary report. Princeton, NJ: Robert Wood Johnson Foundation.
19. Montana Statewide Survey, MEA-MFT, Billings, Montana. December 2001.
20. The Robert Wood Johnson National Alcohol Opinion Poll (The Oregon Coalition to Reduce Underage Drinking). February 2002.
21. Levy, D. T., Miller, T. R. & Cox, K. C. (1999). Costs of Underage Drinking. Prepared by the Pacific Institute for Research and Evaluation in support of the Office of Juvenile Justice and Delinquency Prevention, Enforcing the Underage Drinking Laws Program.
22. Leung, S.-F. & Phelps, C.E. (1993). My kingdom for a drink…? A review of estimates of the price sensitivity of demand for alcoholic beverages. In: Hilton, M.E. & Bloss, G., eds. Economics and the Prevention of Alcohol-Related Problems: Proceedings of a Workshop on Economic and Socioeconomic Issues in the Prevention of Alcohol-Related Problems, October 10-11, 1991, Bethesda, MD. NIAAA Research Monograph No. 25. Rockville, MD: NIAAA, pp. 1-31. Note: A price elasticity of -0.16 for beer, -0.58 for wine, and -0.39 for liquor may also be used to calculate new revenue and consumption values [Nelson, J.P. (1997). Economic and demographic factors in U.S. alcohol demand: A grown-accounting analysis. Empirical Economics. 22(1):83-102]. Using the Leung and Phelps elasticity measure will provide a conservative estimate -- a smaller revenue increase and a larger drop in alcohol consumption -- than the Nelson estimate.
23. Young, D.J. & Bielinska-Kwapisz, A. (2002). Alcohol Taxes and Beverage Prices. National Tax Journal. LV(1):57-74.
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