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Big Alcohol keeps taxes off the menu

At the annual meeting of the Distilled Spirits Council at the posh New York Yacht Club this year, one presentation slide said it all: “Message to policy makers: ‘Now is not the time to raise taxes.’ ”

The slide show created by the alcohol lobbying group also boasted that all 23 proposed alcohol tax increases in key states went down to defeat in 2010.

With budget shortfalls across the country, the presentation made it clear that any tax hikes would hurt the current economy. But year after year, the alcohol lobby is almost always on the winning side of tax fights. It uses a combination of effective lobbying, strategic campaign donations, and pushing a narrative about the negative economic impact of tax increases.

“They almost always win,” said David Jernigan, a public health professor at Johns Hopkins University who has studied the alcohol business for decades. “There aren’t that many industries where there was prohibition in the industry. They put that level of effort into opposing anything that reduces the marketplace for them.”

That effort, combined with an anti-tax sentiment among politicians, has left many alcohol tax proposals dead in the water.

“Getting a tax increase would be difficult,” said Willard Manning, a health studies professor at the University of Chicago. “They’re more likely to give out casino licenses, which encourage drinking, than to do the opposite — which is unfortunate.”

In fact, alcohol tax increases are rare. Federal excise taxes, which the alcohol makers must pay, were last hiked in 1991. The last major increase before that was in 1951. 

Wyoming’s beer excise tax currently sits at 2 cents per gallon. Twelve states haven’t raised their beer taxes in over 40 years. As a result, alcohol taxes have been generating less and less proportional revenue for governments, due to inflation. 


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Being There

The most visible way the alcohol industry opposes tax increases is by always having a physical presence at government hearings on any legislation involving alcohol.

“We can rally a few hundred people together, and that takes so much energy and resources for one issue, one time,” said Sarah Mart, research and policy manager at the Marin Institute, a health policy group that often opposes alcohol-industry tactics. “The industry is there every day with multiple representatives advancing their interests. That's what they pay for.”

The Distilled Spirits Council spent $24.6 million lobbying just on tax issues since 2005, according to the Sunlight Foundation, a nonprofit organization that tracks campaign contributions and lobbying.

Additionally, alcohol lobby groups collectively spent $35 million on state political campaigns in 2010.  

Campaign contributions by alcohol lobby groups are often targeted at lawmakers who are on the fence about taxes, says David Jernigan.

“One third of the people will always be with you,” said Jernigan. “One third will be against, and one third will be in the middle. The third in the middle, you have to keep them happy.”

In California, where 61 percent of U.S. wine is made, three wine interest groups spent $10,000 total on wining and dining legislators and staffers in the past two years, according to the Sacramento Bee’s gift database. For instance, state Sen. Rod Wright (D-Inglewood), a member of the Select Committee on California's Wine Industry, received $282 in gifted wine during that window.

California’s excise tax on wine is 20 cents per gallon, tied with Texas for second lowest in the country. In 2009, a proposal from Gov. Schwarzenegger’s office to raise the wine tax to $1.48 per gallon went down in flames, in no small part due to opposition from the wine industry.

 

Dying on the Vine

But those in the lobbying business say the industry has grown because of the low taxes.

“We’ve been able to make the case in California to various legislatures that a low, stable tax rate is important to this industry that has continued to grow,” said Paul Kronenberg, president of Family Winemakers of California, a lobby that represents small wineries.

Critics of increased alcohol taxes argue the political climate simply does not favor raising any taxes, even ones on alcohol. 

“In California, we pay so many taxes that are among the highest, I don’t think people are eager to be number one in every tax,” said David Kline, vice president of communications and research at CalTax, a taxpayers advocacy nonprofit.

“When you’re looking at it from a pure tax-policy perspective, it’s best to have a broad tax where you have the most people paying at the lowest rate, rather than having a targeted tax like on alcohol or cigarettes,” added Kline.

The alcohol industry is just one member of a broad coalition dedicated to keeping taxes low across the country and protecting its interests from politicians looking to fill budget gaps.

Along with oil companies, small business associations and the Howard Jarvis Taxpayers Association, alcohol companies funded California’s Proposition 26, which voters approved in the 2010 election.

The initiative requires a two-thirds-majority vote to pass any increases in “fees” by the state. Alcohol companies poured $1.8 million into the $18 million spent in favor of the initiative by the victorious “Stop Hidden Taxes” group.

Alcohol manufacturers charge that taxes on alcohol are a drag on the economy and are too regressive, meaning they punish the lower-income population, which spends a larger percentage of its income on alcohol.

“From a tax standpoint, you’re not going to fix a budget problem with beer,” said Dan Kopman, co-founder of Schlafly Beer in St. Louis. “The politics are not great, and that’s probably why they don’t get touched. Republicans don’t want to see any tax increases, and Democrats would see any increase as pretty regressive.”

Small brewers say their businesses already pay their fair share of taxes in corporate and payroll taxes.

“The beer excise tax was first put in place to pay for the Civil War,” said David Walker, co-founder of Firestone Walker brewery. “It’s a matter of principle we don’t support the concept of excise taxes. These businesses pay plenty of taxes.”

 

Jobs and Health Concerns

But the alcohol lobby’s most popular weapon against industry taxes is the jobs argument.

One victory listed in the Distilled Spirits Council’s slide show was the defeat in 2010 of a nickel-per-drink fee in San Francisco. The largest alcohol maker in the world, Diageo, created a political group to fight similar fees. 

“It was a hospitality coalition that was funded by Diageo to essentially tell the stories that if a nickel-a-drink mitigation fee went through that all kinds of bartenders and servers in San Francisco would lose their jobs,” said Sarah Mart of the Marin Institute, which supported the fee. 

Mayor Gavin Newsom eventually vetoed the bill. 

“I cannot support this unnecessary and harmful new fee that will hurt our City's economy and cost us jobs at a time when we most need them," the mayor said in a press release.

Many health policy advocates argue that increased alcohol taxes and “fees for harm,” like the San Francisco proposal, are justified. They say alcohol prices do not adequately cover the alcohol-related health costs which are subsidized by everyone, whether they drink or not.

“With alcohol we have a situation where tremendous subsidies make it so cheap,” said Alexander Wagenaar, a social epidemiologist at the University of Florida. “With all of the emergency costs, assaults, car crashes — the list goes on — a high proportion of those costs are being paid for by all of us.”

Researchers like Wagenaar say alcohol taxes increase revenue and reduce alcohol-related problems at the same time, a double benefit to any state. A 2009 study showed tax increases in Alaska reduced alcohol-related deaths.

But Wagenaar said he’s observed that alcohol industry representatives generally downplay the related health costs of alcohol consumption at legislative hearings. 

“They pretty consistently minimize the wealth of information related to health showing when taxes go up and death and disease rate goes down,” said Wagenaar. “They minimize that because it’s contrary to their interests.”

Another tactic used by the industry is the funding of a proprietary scientific research arm to bolster its positions. Eleven of the biggest alcohol companies in the world sponsor a research group called the International Center for Alcohol Policies

The Center produced a report that argued against using alcohol taxes as a health-policy tool and disputed studies similar to Wagenaar’s. It pointed out that alcoholism remains high in Ireland, a country with high alcohol taxes.

But in 2005, 59 economists signed a letter to Congress stating that federal alcohol tax increases were long overdue. The economists contend that an advantage of alcohol taxes is that price increases generally don’t stop people from buying alcohol.

“They raise a lot of money because demand is not terribly elastic,” said Willard Manning. “It’s easy to collect the money and hard to evade it.”

Even during the recent recession, alcohol demand has not dropped proportionally, according to industry analysts.

“People always pay taxes on alcohol and tobacco,” said Esther Kwon, an investment analyst at Standard & Poor’s. “Those are less sensitive to pricing. The consumers don't really see the taxes.”

The people who do see the taxes are the business owners that have to pay alcohol taxes directly off their bottom lines, like wineries and breweries.

“They want to know when the juice officially has been turned into wine,” said Katie Grassini, a California winemaker. “The government and alcohol producers have to do a lot of paperwork just to gather a small amount of taxes.”

 

Grape Expectations

The amount of revenue generated from federal alcohol taxes in 2010 was $9 billion, according to the Alcohol and Tobacco Tax and Trade Bureau.

Currently, there are two bills before Congress that would lower the federal beer excise tax; one benefiting small brewers, and the other benefiting all brewers. Whatever the outcome, there will be one group tracking the legislation closely.

“If you want to track alcohol legislation, the easiest way is to go to the Distilled Spirits Council and ask them,” said researcher David Jernigan. “They track it more than anybody else.”

Despite major budgetary issues facing governments at all levels, one slide at the Yacht Club meeting proudly displayed the outcome in the alcohol tax game: “Governors, legislative leaders, city officials got the message.”

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