This Dry January, Consider the Alcohol Excise Tax
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Many states have abstained for decades from updating so-called sin taxes applied to wine, beer and liquor. One expert explains why changes could be on the horizon.
Dry January. It’s a time when many people may be thinking longingly of a hard seltzer on the beach. Or, perhaps finding themselves in the middle of an ambitious fitness class (a resolution-fueled decision, for sure) reminiscing about a crisp cider paired with a burger and fries.
But what many people likely aren’t thinking about is how these adult beverages–including seltzers, ciders and canned cocktails–fit into an antiquated alcohol excise tax system.
As the global alcohol landscape changes, those are the conversations policymakers should start having sooner rather than later, according to Adam Hoffer, director of excise tax policy for the Tax Foundation.
“I think that it is an issue that will be increasing in importance, and also could very much affect a lot of products that a lot of Americans purchase,” Hoffer said.
Alcohol excise taxes fall under the category of so-called “sin taxes,” which are levied on products like cigarettes and liquor that can cause harm to people’s well being. They’re implemented to deter consumption while also creating revenue.
Throughout their long history, alcohol excise taxes have been levied on three categories: beer, wine and spirits. Taxes are generally applied based on how the beverage is created. But today, many popular drinks don’t fit neatly in those categories.
For example, some companies are using malt products to create liquors, and there are breweries creating IPAs with higher alcohol content than wine.
“And so all governments–all state governments, the federal government–are really looking at how we redefine and better put to use alcohol taxes,” Hoffer said.
Hoffer said there are two potential changes he sees playing out in the next five to 10 years. First, the list of alcohol excise taxes will grow to include rates for ciders, seltzers, and other beverages that don’t fit under existing labels. The alternative would be to do away with the categories and implement one tax that is based only on alcohol content rather than how products are made.
“I think it would be rather simple for states to make a revenue neutral change, if they wanted to,” Hoffer said.
These changes would be pretty dramatic as some states have gone decades without reconsidering their alcohol excise taxes. Many states have not updated rates on beer, wine and spirits since the 80s or 90s.
Each year brings a handful of new proposals to increase alcohol taxes, according to Hoffer. In recent years, there have been efforts in states including Hawaii, New Mexico and Oregon. But successfully implementing that kind of legislation can be difficult as it’s often unpopular among constituents, Hoffer said.
Molly Bolan is the assistant editor for Route Fifty.
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