States Using Alcohol Tax Increases to Address Budget Woes

Kentucky and Arkansas have joined New York and California in the latest push by state legislators to increase alcohol taxes as a way to address budgetary shortfalls, the Wall Street Journal reported Jan. 17.

Peter Cressy, chief executive of the trade group Distilled Spirits Council of the United States, said that about 10 states are seeking tax increases, with the possibility of 30 more following suit by the end of the year. While beer and wine tax increases traditionally face strong opposition from alcohol distributors and other affected groups, Cressy believes that “this will be an extremely tough year” to stem the taxation tide.

In Kentucky, a wholesale tax on alcoholic beverages has been proposed in an effort to raise an additional $68 million in revenue; the legislation would add about 25 cents to the cost of a six-pack of beer. “We need the money, and I think among the electorate it will be a good bill,” said Rick Nelson, a Kentucky state representative. “The only thing that worries me is that the liquor industry has a lot of money.”

The Kentucky Beer Wholesalers Association and the Kentucky Distillers’ Association are fighting the bill. “When the national economy is a disaster, it doesn’t appear to me that the way to remedy the problem is to increase the tax on the average guy,” said Gene McLean, executive director of Kentucky’s beer-wholesalers group.

(Why raise alcohol taxes?)

The Kentucky legislation echoes taxation efforts occurring in other states. A proposed increase in beer and wine taxes in New York would add about $63 million to state revenues. A suggested nickel-a-drink alcohol tax in California would generate an estimated $829 million through mid-2010. In Georgia, new legislation would let voters decide whether to allow the sale of alcohol on Sunday in grocery, convenience and liquor stores.

Federal excise taxes on alcohol have not changed since 1991, however, and Cressy voiced optimism that Congress will not raise them this year, either.