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Raise the taxes on alcohol and tobacco

By Michael F. JacobsonMichael F. Jacobson is executive director of the Center for Science in the Public Interest in Washington, D.C. / February 16, 1982



President Reagan has rejected increases in excise taxes on alcohol and tobacco. In the process he has spurned a golden opportunity to reduce the federal deficit by billions of dollars and save thousands of lives.

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''Sin'' taxes have long been a way of generating revenue for government. In fact, a hundred years ago alcohol excise taxes accounted for half of all federal revenues.

Federal excise taxes net Uncle Sam about $6 billion on alcohol and almost $3 billion on tobacco. The liquor and tobacco industries are proud of reminding legislators that the money helps pay for schools and bombs. They argue that further increases would only kill the golden goose.

Though the excise taxes do bring in important revenue, the value of that revenue has been woefully degraded since the taxes were last raised 31 years ago. A 1951 dollar is worth only about 30 cents today. It would make perfect sense to hike the alcohol/tobacco taxes back to their original values, and to peg those taxes to inflation so they don't degrade by 10 percent a year in the future. Tripling the taxes would generate about $20 billion in new revenue.

In addition to compensating for inflation, historical inequities in the alcohol tax rates should be corrected. Many people used to think that liquor was much more effective than beer and wine in producing alcoholism. Thus, per ounce of alcohol, liquor is taxed at more than two times the rate of beer and 16 times the rate of wine. The federal tax is only three cents on a bottle of wine and less than three cents on a can of beer. Now, most experts contend that beer and wine are not really any better than liquor, especially when low prices, heavy advertising, and peer pressure encourage widespread teen-age drinking. Raising the beer and wine tax rates to equal that of liquor would bring in another $10 billion in new revenue.

The most troubling aspect about these taxes is that they are regressive: they affect the poor far more than the rich. In fact, the liquor industry, which has previously shown little concern about the plight of the poor, is now pleading that poor people would be especially hurt by a higher excise tax.

To help balance the impact of excise tax increases, which have been advocated by Republican Senators Baker, Dole and others, congressional Democrats should support legislation to withdraw the federal government's subsidy of businessmen's three-martini lunches. When a bottle of gin is bought on a company expense account, the cost is deducted from corporate profits and the business's tax is effectively reduced - the taxpayer picking up as much as half the cost of the gin.

James Mosher, a research analyst at the Alcohol Research Group of the Berkeley-based Institute of Medical Sciences, has calculated that treating liquor purchases as a regular cost of business, costs the Treasury over $5 billion a year. Eliminating this business subsidy would make the higher cost of a bottle of beer somewhat more tolerable.

As important as it is to reduce the federal deficit, there is an even more important reason for raising excise taxes on alcohol and cigarettes: these products are blamed for tens of thousands of deaths each year, and higher taxes would reduce this toll. Alcoholism, drunk driving, time lost from work, and other factors cost Americans approximately $100 billion a year.

The revenue currently raised by all federal and state excise taxes comes nowhere near compensating society for all that harm. Nor is a significant fraction of the revenue used to help wean people from their addictions or to stop children from developing these habits in the first place. Federal alcoholism and smoking prevention efforts, measly in 1980, were slashed sharply by the Reagan administration. Recent studies indicate that higher alcohol and cigarette taxes would both promote health and be politically acceptable.

Considering President Reagan's obdurate opposition to higher taxes - a position fully supported by the giant alcohol and cigarette industries - making headway will be difficult, as President Carter discovered when he sought to slay the government subsidy of three-martini lunches. But the budgetary crisis and the awesome toll taken by these addictive products could forge a curious and powerful alliance of conservative Republicans, liberal Democrats, and health-conscious citizens that just might be able to win long-overdue, sensible tax reforms.