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One News Now

A Look at Alcohol Taxes in the Tar Heel State

BeerBy L.A. Williams, Correspondent
Christian Action League

RALEIGH — Less than a penny per can of beer — that’s the effect of North Carolina’s new alcohol excise tax on malt beverages, set to begin Sept. 1.

While wine drinkers will have to cough up an extra 4 cents per bottle and liquor fans an additional 5 percent per drink starting next month, the question remains as to whether the miniscule alcohol tax increases will bring any true benefits to the Tar Heel state, where alcohol-related healthcare costs total more than $1 billion per year.

“Our state collects $212 million annually in tax revenues from the sale of alcohol products. It costs our state billions to deal with the problems associated with their misuse,” said Wanda Boone, co-founder of Durham TRY (Together for Resilient Youth).

In fact, the North Carolina Department of Revenue collected more than $262.7 million in alcohol taxes during the fiscal year that just ended last month and the tax hikes are expected to increase that number by about $57 million a year.

Who will pay for the increase?

According to the state’s fiscal analysts, liquor sales will bring in $26 million; with $17 million coming from beer buyers and just $4 million from the wine crowd.

Perhaps more significant is the fact that some 58 percent of North Carolinians don’t drink at all and another 26 percent do so infrequently. So the tax will truly affect just a small portion of the population. And even folks who drink two beers a day will pay just $6.28 more per year.

Because it is a user fee, the heaviest drinkers, typically those who create the most societal problems, will pay the most taxes. And although some tax opponents fear the poor will bear the brunt, according to the Center for Science in the Public Interest (CSPI), the bottom 20 percent of taxpayers pay just 8 percent of alcohol taxes while the top 20 percent covers 38 percent of the bill.

“This kind of tax that would more heavily affect those whose behavior is most harmful and costly to society makes sense, which is why surveys show strong public support,” said the Rev. Mark Creech, executive director of the Christian Action League.

A national CSPI poll conducted in 2001 showed that 71 percent of Americans would support increasing beer taxes if the funds were used for substance abuse prevention. And a more recent North Carolina poll conducted by Elon University showed support for higher alcohol taxes among 72 to 78 percent of those questioned.

So, North Carolina’s tax increase on alcohol is apparently popular with the public and won’t exact a huge toll even on regular drinkers, but will the modest price hikes help curb consumption?

It depends on whom you ask. The alcohol industry says heavy drinkers won’t reduce consumption even if taxes are increased and it would be hard to imagine a penny a can slow down a dedicated suds lover. However, studies have shown that higher prices lead to lower consumption by youth and help reduce drinking and driving and alcohol-related deaths and illness.

According to Join Together, the taxes on beer, the drink of choice for most underage drinkers — in fact, according to Adams Beverage Group, some 90 percent of all alcohol consumed in North Carolina is beer — vary from 2 cents/gallon in Wyoming to $1.07/gallon in Alaska. A project of the National Center on Addiction and Substance Abuse at Columbia University, the organization points out that the five states with the highest beer taxes have significantly lower rates of teen binge drinking than those with the lowest taxes. North Carolina’s new rate, 61.71 cents/gallon of beer, falls somewhere in the middle as does the new rate for fortified wine (29.34 cents/liter or about $1.11/gallon).

With that said, local experts expect some modest decreases in consumption.

“The tax increases on wine and beer will reduce purchase and consumption by about one half of one percent,” said economist Philip J. Cook, the Sanford Professor of Public Policy at Duke University who has long been researching the cost and benefits of alcohol. “The increase in liquor prices will be larger and will have a greater effect, perhaps even as large as a 5 percent reduction in the amount of liquor sold and consumed.”

“I hope that organizations such as mine would be diligent in documenting the changes in consumption,” said Boone. “We can make a much better case for future increases.”

In addition to the direct effect of lower consumption, for instance fewer alcohol related wrecks and illnesses, healthcare agencies may also want to keep an eye on rates of sexually transmitted diseases, which studies show tend to drop as alcohol prices rise. According to a study published in 2000 by the Centers for Disease Control, when beer taxes go up or the legal drinking age is raised, gonorrhea rates among young people usually drop.

“We know that when teens drink alcohol they so often engage in other high-risk behaviors; we can only hope that any drop in consumption from the increased taxes will also affect these other areas as well,” said the Rev. Creech.

The National Bureau of Economic Research estimates that if alcohol taxes had kept pace with inflation since 1951, the number of youth who drink beer would have declined by 24 percent. Instead, North Carolina is looking at an underage drinking tab of some $1.2 billion annually, not to mention a bleak future of rising alcohol costs since young drinkers aren’t likely to stop. In fact, studies show that nearly 97 percent of heavy drinkers started drinking before age 21.

“With the National Institutes of Health now finding that 53 percent of the nation’s alcoholics are age 26 or less, the costs associated with alcohol abuse will only continue to rise at our expense,” Boone said.

Already North Carolina spends more than $4.6 million per year on substance abuse and addiction with the majority ($4.2 million) covering “burden” expenses in the justice, health, education, mental health and public safety arenas and fewer than 2 cents per dollar going to treatment and prevention, according to a 2005 Join Together analysis that shows some 19 percent of the state budget tied to substance abuse.

A bill (H 1579) filed this year by Rep. Verla Insko (D-Orange) and Rep. Sandra Spaulding Hughes (D-New Hanover) would have used revenue from the tax hikes for prevention, helping to keep alcohol out of the hands of youth. But the proposal never made it to the House floor.

“The N.C. Substance Abuse Prevention Providers Association, as well as prevention advocates across the state, had hoped that some of the revenue from the increase in the alcohol tax would go to preventing underage drinking,” said Phillip Mooring, executive director of Families in Action and a certified addictions specialist. “It is unfortunate that did not happen.”

“Certainly the tax increase on alcohol will generate revenue for North Carolina, but according to a study by Columbia University, for every $1 collected in alcohol tax, we spend $8.95 dealing with the consequences of problems related to the sale of alcohol,” he added. “Arguably, no legal product imposes a greater financial or societal cost.”

Considering the cost that alcohol abuse exacts on society — crime and violence, traffic crashes, low employment productivity, liver cirrhosis, alcoholism, low graduation rates and more — how much would North Carolina have to lower consumption and at the same time collect from alcohol taxes to somehow break even?

Simply having the taxes keep up with inflation would be a good starting point, experts say. The excise tax for wine had not been increased since 1979; tax on beer had been the same since 1969.

“The excise tax is a flat tax so we’ve basically had 40 years of inflation eroding that tax,” said Dylan Mulroney-Jones, a preventing underage drinking advocate from Durham who addressed the Health Committee of the House earlier this summer, urging lawmakers to stop giving the malt beverage industry “a pass.”

“Although in real dollar value its 53 cents per gallon, when you consider inflation that is equivalent to about 8 cents today,” he said of the beer tax.

Boone expressed a similar opinion.

“Whether a non-drinker or responsible drinker, we are paying a heavy financial price for alcohol misuse,” she said. “Extraordinary times require extraordinary action — 40 years later. Let the alcohol industry sacrifice along with the rest of us.”

The North Carolina Institute of Medicine issued a report in January calling for the General Assembly to index excise taxes on malt beverages and wine to the consumer price index so they can keep pace with inflation. The IOM told lawmakers the increased fees should be earmarked for effective prevention and treatment efforts for alcohol, tobacco and other drugs.

Cook told the New York Times last year that at a minimum, beer and wine taxes should be raised to the level of liquor taxes (20-plus cents a drink) and should be indexed to inflation.

“It is strange that North Carolina (like most states and also Congress) has let the value of alcohol excise taxes erode so greatly by inflation. The Social Security system raises old age pension every year by an amount equal to the inflation percentage — in recognition of the fact that a dollar in 2009 is worth far less than was a dollar in say, 1969,” he said this week. “Yet North Carolina has not raised its beer excise tax significantly since 1969. If we just restored its value to the 1969 value, it would be over $3 per gallon. Even that would not be enough to compensate North Carolina residents for the costs of excess drinking.”

Even so, Mooring is committed to keep trying.

“We will continue to work with the General Assembly to protect our children and families. We just want to see reasonable and responsible tax increases on alcohol,” he said. “One legislator has been quoted as saying, ‘We need to protect Joe Six-Pack.’ We happen to know that tax increases on alcohol are necessary to protect Joe’s kids, and the rest of us.”