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Increase the Cost of Alcoholic Beverages
Policy: Increase the cost of alcoholic beverages by increasing the federal excise tax on alcohol.

Intended Outcome: The purpose of this policy is to reduce the incidence of alcohol-attributable illness and death, especially among youth.

Burden Addressed: Alcohol abuse is the third leading cause of preventable death in the United States and has numerous harmful effects such as cirrhosis of the liver, alcohol psychosis, and breast cancer. In 2001, excessive alcohol consumption was responsible for 75,766 deaths and 2,279,322 years of potential life lost. 1 In 2003, 30% of fatal traffic crashes were alcohol related; 2 28% of these accidents involved intoxicated drivers ages 16-24. 3

Background: In fiscal year 2004, taxes on alcoholic beverages generated $8.47 billion at the federal level.4
Because there has never been an adjustment for inflation, the real rate of tax, and, as a consequence, the real price of alcoholic beverages has been decreasing since 1951, despite periodic nominal tax increases. 5 Over the past five decades, the real price of beer has fallen by 25% relative to the Consumer Price Index and liquor has decreased by almost 50%.6

Evidence/Effectiveness: The most recent increase in the federal excise tax on alcohol took place in 1991. Following the increase, overall per capita alcohol consumption dropped by 6.1%, and has shown a small general decreasing trend since 1991, most likely due to a number of factors.

There is a substantial body of research on the responsiveness of consumption to changes in price – the price elasticity of demand – of alcoholic beverages. The general consensus is that, overall, alcoholic beverages obey the law of demand: higher prices lead to decreased levels of consumption. 7

Low alcohol prices directly affect underage drinkers. The National Bureau of Economic Research estimates that if alcohol tax increases had kept up with the inflation rate, the number of youth who drink beer would be 24% less that it is today.
Ponicki and Gruenewald (2006) published a study that investigated the relationship between alcohol taxation and liver cirrhosis mortality. The researchers found that cirrhosis rates are indirectly correlated with tax rates on distilled spirits. 8

Legislative Context: Federal taxes on alcoholic beverages, last increased in the Omnibus Reconciliation Act of 1990 (PL 101-508), are per unit, i.e., they are expressed as a sum of money per quantity of beverage, rather than as a percentage of the price. Since January 1, 1991, the taxes have been $18.00 per 31-gallon barrel of beer, or about 33 cents per six-pack; $1.07 per gallon of table wine, or about 21 cents a bottle; and $13.50 per proof gallon of distilled spirits, or about $2.14 per 750-mL bottle. The 1991 tax increases represented a 100% increase in the tax on beer, a 519% increase in the tax on table wine, and an 8% increase in the tax on spirits. 9

In May 2005, 59 economists, 3 of whom are winners of the Nobel Prize for Economics, sent a petition to Congress calling for higher taxes on alcoholic beverages stating that an alcohol tax increase is overdue and well justified. The economists said that Congress “would be well advised to increase a tax that would both help close the federal deficit and discourage the continued epidemic of alcohol abuse.” 10


Footnotes:


 
  1. Centers for Disease Control and Prevention. Alcohol-Attributable Deaths and Years of Potential Life Lost --- United States, 2001. MMWR 2004; 53(37): 866-870.
     
     
  2. Alcohol Epidemiologic Data System. Yi, H.; Williams, G.D.; and Hilton, M.E. Surveillance Report #71: Trends in Alcohol-Related Fatal Traffic Crashes, United States, 1977–2003. Bethesda, MD: National Institute on Alcohol Abuse and Alcoholism, Division of Epidemiology and Prevention Research (August 2005)
     
     
  3. Campbell, K. E., et al. Trends in Alcohol-Related Fatal Traffic Accidents: NIAAA Surveillance Report #38. Bethesda, Maryland: USPHS, 1996.
     
     
  4. Internal Revenue Service. U.S. Department of Treasury. SOI Tax Stats - Excise Tax Statistics. Federal Excise Taxes Reported to or Collected by the Internal Revenue Service, Alcohol and Tobacco Tax and Trade Bureau, and Customs Service, 1998-2005.
     
     
  5. Partnership for Prevention. Nine High-Impact Actions Congress Can Take to Protect and Promote the Nation’s Health, 1998.
     
     
  6. Center for Science in the Public Interest. Fact Sheet About Beer Taxes, 2004.
     
     
  7. Partnership for Prevention, 1998.
     
     
  8. Ponicki WR, Grunewald, PJ. The impact of alcohol taxation on liver cirrhosis mortality. Journal of Studies on Alcohol 2006; 67(6): 934-9.
     
     
  9. Partnership for Prevention, 1998.
     
     
  10. Center for Science in the Public Interest. Noted Economists Support Higher Taxes on Alcoholic Beverages. 16 May 2005.