February 1st 2009 is the day that California Governor Arnold Schwarzenegger’s per-drink tax increase will go into effect throughout the state. The tax hike will be a seemingly small 5 cent increase on beer, wine, and spirits in an attempt to in an attempt to shrink the state’s budget deficit of $40 billion.
Is this a wise idea? Well, “sin taxes” like those applied to drinking and smoking are, generally, intended as deterrents against an activity some government agent believes is harmful to “the public”. But discouraging people from drinking in California is like Vegas charging gamblers extra money each time they place a bet in a casino–it could have very negative consequences for economic well-being of an industry that the state relies on for a thriving economy.
In 2005 the wine industry provided California with $3.2 billion in taxes, licenses and fees. California wineries, both as agriculture and tourism are profit-powerhouses within the American economy (California wine production has a $51.8 billion impact on California and $125.3 billion on the U.S. economy at large and provides 800,000 people with jobs), but like just about all other industries wine production is suffering through the current financial crisis. Worldwide, sales are down for wine, especially at the higher price points (though you wouldn’t know it if you happened to be an economist at the white house) and things are likely to get worse as the global economy falters.
Called a “per-drink” tax, the raise is meant to hit consumers of alcoholic drinks, an arguably an unwise consumer to target, the tax actually hits bar and restaurant owners harder than consumers and potentially will affect wineries and vineyards that make a lot of their profit from distribution to those bars and restaurants.
Increased prices and reduced foot-traffic are forcing restaurant and bar owners to either raise prices and purchase smaller quantities of alcohol or to buy less. Tumbling profits and rising prices are forcing producers and distributors to make some tough choices such as cutting back the workforce or cutting production.
All of it trickles down to the bar and restaurant owner already dealing with fewer customers, increasing cost for food ingredients, and smaller profits–for them it is more than a nickel; it could be the difference between staying in business or shutting their doors and letting all of their workers go.
Californians should push back hard on this idea and the Governor should be careful that in this latest round of blood-letting, he doesn’t bleed California businesses dry.