Alcohol Taxes Only Cover Part of Excessive Drinking Costs.

The total harm caused by excessive alcohol consumption is a staggering $2.05 per drink in the United States, and, of this, the government ends up paying about 80 cents per drink.

However, the federal government and states only bring in about 21 cents per drink on average in alcohol taxes, according to a new study by School of Public Health researchers.

Published in the Journal of Studies on Alcohol and Drugs, the findings reveal that the majority of the cost of alcohol’s harms are borne by those who don’t drink excessively or who don’t drink at all.

“Alcohol companies profit enormously from excessive drinking because the vast majority of drinks are consumed by people who do so excessively, but taxes on their products cover only a fraction of the cost to government,” says study lead author Jason Blanchette, postdoctoral associate in the Department of Health Law, Policy & Management. “This amounts to a large tax-payer funded subsidy of alcohol companies.”

Research shows that higher prices on alcohol, often through increased taxes, can lead to less excessive consumption, which in turn reduces a range of alcohol-related harms such as violence, motor vehicle injuries and liver cirrhosis.

“Policy debates around alcohol taxes have mostly centered on public health benefits, but I think our study might change the focus of the debate somewhat, since it seems fair that those who drink the most and who produce and sell alcohol should cover the costs to society,” Blanchette says.

To calculate the total amount of federal and state tax per standard drink in each state, Blanchette and colleagues analyzed state and federal tax data from 2010. Although the federal government charges a standard excise tax that applies in all states (the equivalent of 5, 4 and 16 cents per drink for beer, wine and distilled spirits, respectively), states can charge up to three additional taxes: specific excise taxes, ad valorem excise taxes, and state general sales taxes.

States may assess any combination of these taxes. In fact, Blanchette and colleagues report that four states (Alaska, Delaware, Montana and Oregon) charged only specific excise tax, and no other kind of state tax, on alcohol. Other states and Washington, D.C., applied some combination of specific excise taxes on alcohol plus sales tax and/or ad valorem excise tax.

State and federal specific excise taxes are based on the volume of alcohol sold, not the price, and therefore can erode over time because of inflation. During the past 25 years, state excise taxes have declined by more than 30% on average in inflation-adjusted terms, and federal excise taxes have declined by almost 50% because they were last adjusted for inflation in 1991. Ad valorem excise taxes and state general sales taxes are based on a percentage of the retail price and, therefore, increase in tandem with the purchase price. However, although all states charge specific excise taxes, only a minority of states have ad valorem taxes and not all states apply sales taxes to alcohol.

Accordingly, the study found that specific excise taxes accounted for only one fifth of current tax revenue from alcohol. “All states have specific excise taxes because that was the standard when alcohol prohibition was lifted, but they haven’t kept pace with inflation so now they’re not worth much now,” Blanchette says.

“The bottom line is that current alcohol taxes, even considering all types of tax including general sales taxes, don’t come close to covering alcohol-related costs,” says senior author Timothy Naimi, professor of community health sciences and a physician and alcohol epidemiologist at Boston Medical Center.

On average, state alcohol taxes brought in an average of 13 cents per drink, the researchers found. Delaware brought in the least (3 cents) and Tennessee brought in the most (27 cents) per drink. Once Blanchette and colleagues added in the average amount of federal taxes per drink, the total average tax amounted to 21 cents per drink.

However, this is only a fraction of alcohol-related costs from excessive drinking. “Total alcohol taxes accounted for a median of 26.7 percent of the economic cost to the government,” the authors write, “and 10.3 percent of the total economic cost of excessive drinking.” Total alcohol taxes per drink were compared with cost per drink based on a Centers for Disease Control and Prevention study that included medical costs, costs to the legal and criminal justice systems and lost productivity but did not include “intangible” costs such as pain and suffering.