Responses to Misleading and Inaccurate Beer Industry Propaganda on Excise Taxes

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1 Responses to Misleading and Inaccurate Beer Industry Propaganda on Excise Taxes Forty four percent of the retail price of beer is now consumed by taxes. The ʺ44 percentʺ calculation deceptively includes sales tax, federal income and payroll taxes, state and local income, payroll and other levies. The federal excise tax on beer amounts to only about a nickel per drink less than seven percent of the average price of a six pack. Moreover, the relative value of the tax on beer has declined considerably as the value of the excise tax has not kept pace with inflation. For example, at todayʹs rate of $18.00 per barrel, the beer tax would have to increase by one third, to 43 cents per six pack, from its current level of approximately 33 cents, just to offset the effects of inflation since The tax would still be considerably less than 10% of the cost of a six pack. Beer taxes are regressive and hurt working class people (a.k.a. Joe Sixpack ). If beer marketers are so concerned about lower income consumers, why do they continually raise prices on their own to increase profit margins? Brewers routinely increase beer prices without hurting sales in order to boost profits. Producers are not concerned about ʺaverageʺ drinkers, because they know that most of their revenue comes from heavy drinkers. Alcohol taxes are not a working class tax, but a drinkingclass tax. The heaviest drinking ten percent of beer drinkers consume 43 percent of reported beer consumption. 1 The moderate drinking majority of drinkers consume, on average, relatively little alcohol and pay a negligible amount of alcohol taxes. Heavy and addicted drinkers who account for most of the beer consumption in the U.S. rightly pay most in beer taxes since their drinking imposes the greatest costs on society. The Congressional Budget Office (CBO), in a 1990 report on tobacco, alcohol and gasoline taxes, found that expenditures on alcohol represented similar percentages of total family expenditures across income classes (among families that purchase alcohol). According to the CBO report, ʺThe budget share for alcoholic beverages actually rises with adjusted family income: families in the lowest income quintile spend 1.5% of their budget on alcoholic beverages, while families in the middle income quintile spend 2.0% and families in the highest quintile spend 2.3%.ʺ The report further stated that, ʺThese results suggest that, to the extent that annual family

2 expenditures rather than annual family income better reflect lifetime income, expenditures on alcohol are progressiveʺ (emphasis added). Moreover, lower income people consume less alcohol than wealthier consumers, and drinking is more highly concentrated among a small subgroup of heavy drinking lower income consumers. For example, the 20% of low income consumers with the highest expenditures for alcohol account for 82% of all alcohol expenditures within the low income cohort. By contrast, the heaviest spending 20% of upper income consumers account for 54.3% of all alcohol expenditures within that cohort. Contrary to popular stereotypes, higher income consumers are more likely to drink beer than lower income consumers. Well over half of adults (54.1%) earning $75,000 or more per year are beer drinkers, whereas only 34.6% of individuals earning less than $20,000 are beer drinkers. Thus, relatively fewer low income than high income people would be significantly affected by an alcohol excise tax hike. 2 Beer Industry Myth Beer taxes do not help reduce problem drinking and unfairly hurt moderate beer drinkers. In fact, studies have found that increases in state taxes on alcoholic beverages are associated with lower rates of death from liver cirrhosis (a marker of heavy and addicted drinking) as well as fewer drunk driving crashes. 3 Most people are barely affected by beer taxes, if at all. That s because onethird of adults do not drink any alcohol, and the vast majority of drinkers consume so little alcohol on average that they would pay at most pennies per year if alcohol taxes were raised. Joe Sixpack is atypical: the few drink most of the alcohol: 80% of drinkers consume only 19.6% of all the alcohol downed in the U.S. 5% of the drinkers consume 48% of the total alcohol. 35% of adults don t drink at all. 4 2

3 Small Change, Real Revenue What beer drinkers would pay if the beer tax had kept pace with inflation since 1991: 8 of 10 drinkers pay at most = $38/year; 10 /day HALF of drinkers pay at most = $6.37/year; 2 /day The heaviest 5% of drinkers pay on = $301/year; 83 /day average Revenue Increase = $1.6 billion + per year In fact, most of the alcohol sales and consumption (about 80%) is concentrated within the top fifth of all drinkers, whose heavy consumption imposes the greatest costs on society. Lower income consumers are even less affected the poorest fifth of all consumers has the highest rates of abstention from alcohol, and heavy drinking among that population is far more concentrated than it is among higher income groups. At the low end of the income scale, only 10% of all families account for 82% of all alcohol expenditures. Those are the people who now pay the lion s share of alcohol taxes among low income persons, and no doubt suffer as well from serious problems related to drinking. The 1991 increase in the Federal beer tax has destroyed 31,000 jobs. The alcoholic beverage industry grossly exaggerates the economic impact of tax increases. Brewers and distillers assert that alcohol tax increases would cause massive job losses and harms to their industries, and they wildly overstate ʺhardshipsʺ caused by the 1991 tax increase. Government data fail to support such claims. In fact, according to the Bureau of Labor Statistics of the U.S. Department of Labor, between 1990 and 2000, beer industry wholesale trade employment rose by more than 8,000 jobs, including increases between 1990 and 1992 (a year before and after the tax increase). Jobs at the manufacturing level fell, but this decline began decades earlier, in response to producer consolidation and automation. Beer sales have grown steadily from $44.6 billion in 1989 to nearly $82.4 billion in In the same period, spirits sales soared more than $20 billion and wine sales grew by $11.4 billion. 3

4 The 1991 increase in the Federal beer tax has not resulted in a doubling of Federal revenues. To the contrary: the decline in demand, the resultant loss of jobs, and the reduction of direct purchases has cost Federal and state governments hundreds of millions of dollars in lost tax revenues. The tax on beer has cost millions more in increased outlays for unemployment compensation and other social services to help those who were put out of work by the tax increase. These assertions are wildly exaggerated and not supported by any real evidence. Federal excise taxes on beer generated some $1.7 billion in 1990, rising to $3.7 billion in The beer market has increased, not decreased in the past decade, even as brewers have arbitrarily raised prices on their own to maximize profits. Furthermore, any decrease in sales and consumption would likely result in a decline in alcohol problems and significant savings in related health and safety costs (alcohol problems cost American society more than $184 billion in 1998 in health care, criminal justice, social services, property damage, and loss of productivity expenses). 5 In fact, studies have determined that increases in the total price of alcohol can reduce drinking and driving and its consequences among all age groups; lower the frequency of diseases, injuries, and deaths related to alcohol use and abuse; and reduce alcohol related violence and other crime. 5 The Bottom Line: The beer industry has long opposed raising taxes on its products, even maintaining that they should be lowered. However, lower beer taxes would only add to the deficit, cater to a prosperous industry, reward and encourage heavy drinking, and attract more young drinkers, fueling increased alcohol problems and increasing public costs. The best interests of consumers, young people, the U.S. Treasury, and the public health and safety of America would be better served by raising, not lowering beer taxes. References: 1 Rogers, J.D. & Greenfield, T.K. (1999). Beer drinking accounts for most of the hazardous alcohol consumption reported in the United States. Journal of Studies on Alcohol. 60(6): Adams Beer Handbook, Chaloupka, Frank J., Michael Grossman, and Henry Saffer, (2002) The Effects of Price on Alcohol Consumption and Alcohol-Related Problems, Alcohol Research and Health, Vol. 26, No National Epidemiologic Survey on Alcohol and Related Conditions, Harwood, H. (2000). Updating Estimates of the Economic Costs of Alcohol Abuse in the United States: Estimates, Update Methods and Data. Report prepared by the Lewin Group for the National Institute on Alcohol Abuse and Alcoholism. Journal of Law and Economics. 31(1): Center for Science in the Public Interest 4

5 1875 Connecticut Avenue NW, Suite 300 Washington, DC Website: Contacts: Kimberly Miller, Manager of Federal Relations Tel: (202) George Hacker, Director Tel: (202) (April, 2007) 5