No Sense in Maryland’s “Dime-a-Drink” Tax Increase

Maryland’s proposed “dime-a-drink” tax increase doesn’t sound bad, but the deceptive name hides the true impact of such an increase on local businesses.

First, it is not ten cents a drink for all liquor:

Bills filed in both the House of Delegates (HB 832) and the state Senate (SB 717) would raise the alcohol tax from $1.50 to $10.03 per gallon for distilled spirits, from 40 cents to $2.96 per gallon for wine, and from 9 cents to $1.16 per gallon for beer.”

If one considers that a gallon has 128 ounces of liquid and the average beer comes in a 12 oz. serving size, then yes, the proposed tax increase does work out to about $0.10 per drink. However, the tax increase is significantly more for other types of alcohol.  Currently in Maryland, when you purchase an average sized glass of wine  (6 ouncesl) the amount of tax you pay works out to about $0.02 per glass. The “10-cent-drink-tax” would increase that tax to $0.14 per glass. For distilled spirits (about 3 ounces per shot) the tax would increase from the current 3 cent tax to about a $.25 tax per shot.  Broken down per bottle, glass, or shot, the tax may not seem like much, but calculations show that the actual price increase is around 700% to 1,300%. Moreover, the tax will not be paid per serving initially–restaurants, retailers, and distributors of alcohol will pay the full increase in price .

Lawmakers underestimate the negative impact on businesses:

Because the taxes on alcohol are imposed on distributors (Note: anyone selling alcohol must purchase it from distributors), the cost of purchasing alcohol will increase not by 10 cents, but by $10.03 per gallon of spirits, $2.96 per gallon for wine, and $1.16 per gallon for beer. For businesses that purchase large quantities of alcohol, the increase could bust their budgets.

Assuming that restaurants can cope with the increased costs of purchasing alcohol for their businesses, they are then left with two options: either “eat the cost” and keep prices for their customers the same, or increase the prices in order to “pass the tax” on to their customers. Most restaurants will choose to increase their prices on alcohol as well as food, which means that patrons not even imbibing alcohol will pay the cost for the increased tax.

While it may seem easy enough for restaurants or bars to increase prices a few cents, lawmakers don’t seem to be considering the fact that many business owners and consumers are still recovering from the last few years of economic decline.

Many businesses in Maryland closed in the last few years, but some were able to stay afloat by taking out lines of credit and reducing their profit margin. Regardless of how low Maryland’s current alcohol tax is compared with the rest of the U.S., any increase in the rate will negatively impact businesses who have calculated their operating costs and slim profit margins based upon the current tax rates. One must also consider the myriad other taxes imposed on businesses–the state sales tax for example–and the costs of other regulations, like licensing, etc.

As Alexander Piches, the owner of Li’s & The Kat Lounge in Hagerstown put it:

“They seem to think businesses have deep pockets…But right now, restaurant business is down tremendously and now is not the time to add new taxes…We’re a dry sponge”

The result of increased drink tax on service industry workers:

Another element lawmakers don’t seem to consider with the proposed tax increase is the effect on service-industry workers. It is true that increasing taxes could result in less foot-traffic, businesses failing, and jobs lost. However, the per-drink tax will affect waiters and bartenders in a more subtle way: by decreasing their tips.

Most customers at bars and restaurants calculate the tip they give to servers by simply 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 is coming almost directly out of the tip of the already low-wage service industry worker.

In tough times, it is understandable that lawmakers look to unessential items like alcohol to increase state revenue rather than cutting “essential” services. However, the proposed increase could 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 Maryland.