Assault on Alcohol

Assault on Alcohol

January 20, 2011
Originally published in The Washington Times

A dime a drink may not sound that bad, but the deceptive name of Maryland's proposed new beverage tax hides its real impact on local businesses, jobs and the state's economy. The proposal would require wholesalers to pay the "dime per drink" tax on all of their liquor sales upfront and then pass along the cost to retailers and restaurants, which presumably would pass it along to consumers per drink. But the upfront cost to wholesalers and retailers could be overwhelming.

The proposal would raise the tax on beer from 9 cents to $1.16 per gallon, the tax on wine from 40 cents to $2.92 per gallon and the tax on distilled liquor from $1.50 to an astonishing $10.03 per gallon. The tax would increase wholesalers' inventory costs by 700 percent to 1,300 percent.

Proponents of the tax argue that it would raise revenue for the smarting state budget, but they underestimate its impact on businesses. In the end, the tax increase would hurt, rather than help, the state's economy.

The taxes on alcohol are imposed directly on distributors, so the increase in the upfront cost of purchasing alcohol could bust their budgets. Distributors may have to purchase less inventory, fire workers or raise prices - or possibly all three.

Assuming that restaurants can cope with the increased costs, they are then left with two options: Absorb the cost and keep prices the same or increase prices in order to pass on the tax to their customers. Most restaurants likely would increase their prices, not just on alcohol, but also on food. This means that all potential patrons, even teetotalers, would end up paying for the tax increase - that is, if they continued eating and shopping in Maryland.

One unintended consequence of the tax increase could be a reduction in purchasing and spending in Maryland. With the District of Columbia a short train or car ride away, Marylanders, like Virginians, seeking better options to their state's liquor sales monopoly might begin to do the majority of their alcohol shopping in the District. That would further hurt Maryland businesses struggling to recover from the economic downturn and stall the projected revenue bump the tax was intended to generate.

Worst of all, the tax increase would hurt those who can least afford it: workers in the service industry. Increasing taxes could result in less foot traffic, leading to more business failures and lost jobs. The per-drink tax would affect waiters and bartenders in a more subtle way - decreasing their tips.

Most customers at bars and restaurants calculate the tip they give to servers by rounding up - the so-called "keep the change" method. If the cost of a drink increases by 10 cents, customers aren't likely to alter their "keep the change" calculation. Thus, the tax would be coming almost directly out of the tips of the already low-wage service-industry worker.

In tough times, it is understandable that lawmakers look to tax luxury items such as alcoholic beverages to increase state revenue rather than cut "essential" services. However, the proposed increase would end up costing the state of Maryland businesses, jobs and customers - ultimately resulting in fewer tax dollars, fewer patrons and an overall decline in the quality of life in the Free State.