Alcohol Taxes and Fees: An economic and historical perspective Bruce Lee Livingston, MPP Executive Director - Marin Inst

1. Alcohol Taxes and Fees: An economic and historical perspective Bruce Lee Livingston, MPP Executive Director - Marin Institute Assembly Select Committee on Alcohol and Drug Abuse March 6, 2008

2. A Brief History of California Tax/Fee Proposals • 1990 failed initiative of 5 cent increase; industry spent $30 million to defeat • 1992 - last alcohol excise tax increase, a penny per drink • 2003 – SB 108 (Romero) – 5 cent fee proposal for alcohol-related emergency services • 2003 – AB 216 (Chan) – Fee proposal for up to $100 million for youth recovery/prevention • 2006 – SB 656 (Romero) – Proposal to allow counties to assess sales tax for on-premise consumption, for revenue purposes only

3. California Excise Tax Rates Lower than Other States, the World(Rates are per gallon, US dollars) CA Ave. w/Fed UK Sweden Beer .20 .25 .58 4.44 3.59 Wine .20 .79 1.07 14.09 13.21 Spirits 3.30 3.97 11.10 64.06 119.96 • CA tied for third lowest in wine rate, with Texas; only New York and Louisiana lower • Due to inflation, real value of CA taxes have declined 45 percent since 1992

4. CA Alcohol Taxes, 1969-2002

5. CA Alcohol Taxes, 1985-2002

6. U.S. Alcohol Taxes, 1950-2002 * *In 2002 Dollars Source: BATF, 2003; BLS, 2003

7. Bigger Budgets need Bigger Taxes • In 1992, the $302 million in alcohol excise tax revenues, covered 0.35% of the state’s $85 billion budget. • In 2005, with the budget expanding to $173 billion, the $318 million collected from alcohol, covered only 0.18% of our budget. • Alcohol’s excise tax contribution to the budget is half of what it was in 1992.

8. Costs of Alcohol in California(preliminary estimates by Marin Institute) More than 9,000 lives lost annually Economic costs include: • Lost productivity $22.3 billion • Criminal justice $7.3 billion • Healthcare $6.4 billion Total costs: $36 billion About 2/3 or $4.3 billion of healthcare is covered by government programs

9. How Big a Fee for health care or prevention programs? About 2/3 of medical costs are incurred by government programs $4.3 billion of healthcare costs from alcohol out of $6.4 billion annually

10. Alcohol Industry Pays Small Portion of Total Costs • Sales taxes = $1.56 billion • Excise taxes = $318 million • License fees = $50 million • Total paid: $1.94 billion Percentage of total costs covered by current taxes and fees = 5% Jobs are claimed as economic benefit, but reductions in alcohol consumption mean consumers purchase in other sectors.

11. Alcohol Excise Taxes Lag Far Behind Tobacco Revenues(Figures for 2005/2006) • Tobacco tax revenue = $1.09 billion • Tobacco costs = $19 billion • Alcohol tax revenue = $318 million • Alcohol costs = $36 billion Tobacco taxes are 6.5 times as effective as alcohol excise taxes in internalizing harm

12. Proposed Alcohol Tax Increase • Option one • Across-the-board, 25 cent per drink increase on beer, wine and spirits • Additional Revenue Generated: $3 billion • Option two • Bring beer (which causes the most harm), up to tax level for distilled spirits • Additional Revenue Generated: $2 billion (Adding wine generates $300 million more)

13. Taxes or Fees Could Cover • Emergency room and trauma care • Medi-Cal coverage for illness, injury • Mental health and alcohol treatment • Dedicated alcohol prevention programs (at ADP) • Alcohol ad monitoring and counter-ads • Policing of liquor stores, crime prevention • Traffic safety, injury prevention

14. Impact on Consumers of Taxes or Fees About 1/3 of population does NOT drink. Of those who DO DRINK: • Average is 3 drinks per week • 50% drink 95% of total volume • 10% drink 55% of total volume Source: Paying the Tab, by Philip Cook Impacts felt hardly at all by most, while reducing harm from over-consumption.

15. Public Support for Raising Tax? • Polling done well ahead of 1990 initiative: 73 percent said they would support a nickel-a-drink tax • People more likely to support alcohol tax or fee increases when they know the money will be directed to alcohol-related programs

16. Challenges – Influence of Industry • Industry spent more than $30 million to defeat 1990 tax initiative • Several legislative attempts failed since the penny-per-drink increase in 1991 • According to a Marin Institute report, Big Alcohol donated $3.5 million to CA politicians in 2006 and spent additional $3 million on lobbying

17. Possible Actions • At minimum, charge alcohol user fee to cover ADP and ABC services. ($200 M or more) The nexus is overwhelming. • Adjust alcohol excise tax for inflation ($.7 B) • Consider 25¢ per drink excise surcharge ($3 B) • Consider 30¢ beer only excise surcharge ($2 B), as beer is teen drug of choice, greatest harm and greatest revenue • Make the alcohol producer pay, not the taxpayer

18. Contact Information Bruce Lee Livingston, MPP Executive Director BruceL@MarinInstitute.org (415) 257-2480 (direct) www.MarinInstitute.org