State Alcohol Taxes and Health:
A Citizen's Action Guide

CHAPTER 2

INTRODUCTION

Three main rationales have been advanced to support increases in alcohol excise taxes:

  • raising revenue
  • reducing alcohol consumption and related problems
  • providing funding for key government programs

Historically, the first has attracted most interest, and remains an important factor today, particularly in light of recent federal budget cuts in social programs and growing state needs.

Recently, however, interest in the public health benefits of raising excise taxes has increased. Numerous studies indicate that boosting alcohol taxes can be an effective means of deterring and reducing youth alcohol use, reducing alcohol-related motor vehicle accident mortality and morbidity among young people, improving college completion rates, and ameliorating some of the other problems associated with excessive drinking, including alcohol-related violence and liver cirrhosis.

Research by Michael Grossman and Douglas Coate of the National Bureau of Economic Research, and Gregory Arluck of the New York Telephone Company concluded that even modest price increases -- 30 cents for a bottle of liquor and 10 cents for a six-pack of beer -- would decrease drinking among young people as much as raising the drinking age by one year. Other studies by Coate and Grossman indicate "that if beer taxes had kept pace with inflation since 1951, and if taxes on beer and spirits had been set at equivalent levels, the number of youths who drink beer four to seven times a week would have declined by 32 percent and the number of youths who drink beer one to three times per week would have declined by 24 percent." A good review of alcohol tax issues in the context of public health appears in Research Monograph - 25, Economics and the Prevention of Alcohol-Related Problems, a 1993 publication of the National Institute of Alcohol Abuse and Alcoholism. Although many research questions still need to be addressed, there is little doubt that increasing and prices will reduce demand and consumption and help reduce the carnage and costs related to drinking.

Alcohol taxes most often flow into states' general funds; however, some states have earmarked alcohol tax revenue specifically to combat alcohol problems through treatment, prevention, and law enforcement (see Appendix C). Other states earmark part or all of the revenue for programs such as alcohol research, alcoholic-beverages control offices, local governments, state building construction, pension relief, transportation, and, ironically, the state grape industry (Arkansas, Ohio, Oregon, Washington).

For example, a 1993 alcohol excise tax increase in New Mexico generates approximately $15 million annually in new revenue. About one-third of this money went toward alcohol prevention and treatment activities at the local level.

Arizona earmarks more than one-third of its liquor tax revenue for the state corrections fund. Approximately the same percentage of Michigan's revenue from liquor taxes goes to convention promotion, with an equal share dedicated to school aid. Idaho, Nevada, New Jersey, Ohio, and Texas are among those states that provided a portion of alcohol revenues for alcohol education and prevention programs.

CSPI 1996

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