While dozens of factors impact alcohol consumption, one of the most important is availability. In general, people drink more when alcohol is easier and less expensive to obtain. Because of this fact, making alcohol harder to obtain and more expensive results in a decrease in drinking and therefore a decrease in alcohol abuse. One of the most efficient and powerful methods that states have at their disposal to increase the cost of alcohol consumption is through the use of excise taxes. A recent article by Science Daily investigates whether we are appropriately taxing alcohol.

What are excise taxes?

An excise tax is a tax paid when a specific good or service is purchased. Many states use excise taxes to add a cost to the use of certain products that are deemed harmful in some way. For this reason, excise taxes are sometimes derogatorily referred to as “sin taxes.” Excise taxes are by far the most common type of tax placed on alcohol sales (other than standard sale taxes). All 50 states have excise taxes on beer sales, and most do for wine and liquor as well.

How much are alcohol taxes?

Excise taxes on alcohol are generally very old, even archaic. Generally, they are flat taxes based on a fixed cost per unit volume. However, the unit of volume they are based on is often very different from what the average customer will purchase. For example, a tax might be $15 per barrel. A study concluded that the average excise tax on alcohol is 3 cents for a 12-ounce beer, 3 cents for a 5-ounce glass of wine, and 5 cents for a standard shot of liquor.

What is the problem with the way that alcohol taxes are charged?

The biggest problem is that alcohol taxes are simply too low. Because alcohol taxes are flat taxes based on a volume sold instead of a percentage of sale price, they are not impacted by inflation. That study found that since 1991, the inflation-adjusted cost of alcohol excise taxes has gone down by 30% for beer, 27% for wine, and 32% for liquor. In some states, the actual cost of alcohol taxes for a standard drink rounds down to $0.00.

What would happen if alcohol taxes were raised?

Research shows that raising the cost of each drink by 10% reduces consumption among the general population by 5% – 6%. There are 88,000 deaths and $249 billion in costs every year in the United States due to excessive alcohol consumption. Reducing damages by 5% would save 4,400 deaths and $12.45 billion in costs.

The other major benefit of raising alcohol taxes is that it increases the tax revenue brought in by the state. This is incredibly important now, because so many states are facing budget deficits. Considering states spend billions of dollars every year as a result of alcohol-related expenses, ranging from repairing damage to law enforcement salaries. In this way, higher alcohol taxes would be doubly beneficial in the fight against alcohol abuse. Not only would they lower alcohol use, but they would also help pay to mitigate the damage resulting from alcohol consumption.

  • Author — Last Edited: January 26, 2018
    Photo of Jeffrey Juergens
    Jeffrey Juergens
    Jeffrey Juergens earned his Bachelor’s and Juris Doctor from the University of Florida. Jeffrey’s desire to help others led him to focus on economic and social development and policy making. After graduation, he decided to pursue his passion of writing and editing. Jeffrey’s mission is to educate and inform the public on addiction issues and help those in need of treatment find the best option for them. In his free time, Jeffrey chooses to spend time with family and friends, preferably outdoors.

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