ED091296b: Drunk on Power


ED091296b: Drunk on Power

Sep 12, 1996 2 min read

F.M. Kirby Research Fellow in National Security Policy

With the fall elections just weeks away, there's one issue far more important to many Americans than presidential debates, congressional mudslinging or the latest Gallup poll. It's beer.

Specifically, the beer tax. This may come as a shock, but every time one of America's 75 million beer drinkers picks up a six-pack of his favorite brew, 43 percent of the cost comes directly from taxes, according to a study by the economic consulting firm DRI/McGraw-Hill. To put this in perspective, a $5 six-pack actually costs only $2.85 -- until you factor in the tax.

The proper response of the American people to this punitive level of taxation should be clear: revolt. At least that's what another group of Americans did when the federal government levied an excessive tax on their liquor. It was the Summer of 1794. To protest an excise tax placed on their whiskey three years earlier, angry citizens in the Northeastern states rose up against their federal overlords, tarring and feathering government officials and burning down their homes. Before you try this at home, a word of caution: The feds had a pretty strong opinion about the "Whiskey Rebellion" protesters. They shot them.

Alas, it's not likely that we'll see today's overtaxed beer drinkers take to the streets. The reason: Beer drinkers have at best a dim understanding that they're even being taxed. The sales and excise taxes that apply to beer are largely "hidden." Consumers see only the final sales price of beer that rings up on the cash register, never realizing that their $15 case costs only $8.50 before taxes.

But just because beer taxes are hidden doesn't mean their effect isn't real, both on beer drinkers' wallets and on the economy. Consider: Since 1990, when beer taxes were boosted as part of a larger tax package, the beer industry has lost 60,000 jobs, according to The Beer Institute. When American brewers pay seven times more in taxes than they earn in profits, it's difficult to retain their workers.

To add insult to injury, the other taxes that were part of the 1990 package -- notably on yachts, private planes, jewelry and furs -- have all been repealed. This is great for people with disposable incomes of around, say, a million dollars, but it does nothing for the little guy who pays the beer tax (nearly two-thirds of all the beer sold in America each year is bought by households earning less than $45,000).

Fortunately, relief may be at hand. Rep. Phil English, R-Pa., has introduced legislation that would cut the beer tax in half -- back to its pre-1990 level. "Because they are concealed," English says, "these taxes engender little opposition from the taxpayers. But they contribute tangibly to the cost of living for hard-working Americans." No kidding. If you buy just one $5 six-pack a week, by the end of the year you've forked over $112 in taxes to the government. That's more than a full day's work for the average wage earner.

Of course, English's proposal is sure to meet with opposition from those who think cutting the beer tax will lead to increased alcohol consumption. These folks -- let's call them liberals -- view the tax code as a powerful tool for bending human behavior to fit their preferences. And at the moment, beer drinking is one activity definitely frowned upon by the wine-and-cheese crowd.

The ironies are delicious. Not only do liberals, the traditional advocates of "progressive" taxation, wind up supporting a tax that falls disproportionately on lower- and middle-income Americans, but these self-styled champions of "the worker" also ignore the fact that the beer tax hurts an industry that employs 2.6 million people -- everything from assembly-line workers in bottling plants to delivery-truck drivers.

Let's face it, the beer tax is a raw deal. But don't expect change anytime soon. Maybe it's their nature, but too many lawmakers are addicted to controlling people's lives through levies like the beer tax. In short, they're drunk on power.

Note: Adam D. Thierer is the former Alex C. Walker fellow in economic policy at The Heritage Foundation, a Washington-based public policy research institute.