Dime a Drink Tax in Maryland will Hit Everyone

Though it is touted as a “dime a drink” increase on alcoholic beverages, the proposal in Maryland to raise the excise tax on alcohol will hit everyone in the state.

As I wrote last year, when lawmakers proposed the dime a drink tax, the excise hike will be paid upfront by the state’s alcohol distributors. Despite the cute name, the dime a drink tax increase represents an actual increase of about 700 to 1300 percent based on industry calculations. The presumption made by lawmakers is that the wholesalers will defray the cost by raising the prices they charge to retail stores and restaurants, and the restaurants/stores will raise the prices per drink on consumers. However, their assumptions and their calculations are wrong.

First of all, restaurants are not likely to just raise their prices on drinks to cover the increased cost of purchasing alcohol. Rather, they will raise prices on all of their menu items, which means that even non-drinkers will end up paying for the tax increase.

Second, lawmakers assume that Marylanders will continue to purchase alcohol at the current rate, but with the D.C. border not very far for almost all Maryland residents, it is more likely that even a slight increase in prices will drive liquor purchasers into the District where the excise tax and prices are already lower than surrounding states. Less patronage at Maryland establishments means a reduction in tax revenue.

In reality, this tax hurts the people who can afford it least — those restaurants still hurting from the economic recession and workers in the food service industry. Restaurants, which have been taking smaller and smaller profit margins as costs rise and patronage dries up, could be forced to fire workers or reduce salaries rather than raise their prices. Those waiters and bartenders that keep their jobs will likely see their tips dwindle as most people calculate tip by “rounding up” the cost of their meal or tab.

All in all, the so called “drink tax” will not raise revenue for the state, will hamper the state’s economy, and will hit those who are most vulnerable the hardest.