NABCA Board Meeting
Paying the Tab:
The Case for Higher Alcohol Taxes
Philip J. Cook
Duke University
January 10, 2009
Portfolio of Alcohol Policies
Complex problem, multifaceted solution
o Treatment, education
o Policies for risky circumstances
(DUI, pregnancy, work)
o Harm-reduction policies
o Supply side policies (“alcohol control”):
tax, minimum age, marketing, licensing
The main argument
One important instrument has been
neglected
 Alcohol is too cheap
 Best solution: raise excise taxes
Two mechanisms for improving
the public health through tax
The excise-tax revenue could be
earmarked for prevention
Higher taxes  higher prices 
reduced use and abuse
regardless of how revenues are spent
Recent trends
Beer Tax
Beer Tax
Tax Rate
Tax
(cents per Rate
oz. of ethanol)
(cents per drink)
55
55
50
50
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
1970
Comparing Real Federal Tax Rates for
Comparing Real Federal Tax Rates for
Beer, Wine and Liquor 1970-2008
Beer, Wine and Liquor 1970-2008
1970
1974
1974
1978
1978
1982
1982
Wine Tax
Wine Tax
1986
1986
1990
1990
Year
Year
1994
1994
Spirit Tax
Spirit Tax
1998
1998
2002
2002
2006
2006
Retail prices trending down
CPI change for package sales, 25 years
All alcohol: - 11.7%
Spirits:
-12.3%
Beer:
- 8.8%
Meanwhile, remarkable decade
in cigarette excise taxation
1998 – 2008
Federal excise tax per pack:
$.24  $.39
State excise taxes
41 states raise tax rate by > $.25
(11 states increase by more than $1.00)
Excise Tax Revenues
Federal
$billions
State
$billions
Total
$billions
Cigarettes
7.5
14.0
21.5
Alcohol
8.9
5.2
14.1
Tobacco as an inspiration
Cig taxes are now fair game for states and
cities
Justified as public-health measure
No carryover to alcohol taxes. Why?

Size of problem?

Strength of evidence on efficacy?

“Lessons” of Prohibition?
The wrong lesson
The “Great Experiment”
This ‘dreadful example’ is now so firmly
established that it has become a maxim
of popular culture, a paradigm of bad
social policy, and a ritual invocation of
opponents of a variety of sumptuary laws
Aaron and Musto 1981
Prohibition & Drinking
1911-14 1918-19 1921-22 1927-30
Local Wartime Volstead Volstead
bans
limits
Ethanol
1.69
0.97
0.73
1.14
gals.
Cirrhosis
mortality
rate
13.9
9.3
8.0
8.2
Prohibition’s differential impact
by class and location
Alcohol-related mortality drops sharply for
working class
Martha Bensley Bruère’s survey of social
workers
(National Federation of Settlements)
Good evidence on alcohol
control and outcomes
“Indeed, the forty-eight states will
constitute a social science laboratory in
which different ideas and methods can
be tested, and the exchange of
experience will be infinitely valuable for
the future.” {Fosdick & Scott 1933: 150}
30 years of research:
Higher taxes save lives
Reduce alcohol sales and binge drinking
Reduce highway fatalities (stronger effect
for youths)
Reduce rate of STD transmission (stronger
effect for adolescents)
Reduce youth suicide rates (under age 24)
Reduce cirrhosis mortality rate
Reduce robbery and rape
How high for excise tax rates?
Public health standard: higher is better
Historical standard
$1.68 federal tax on fifth of 80-proof spirits, 1951
$13.50
equivalent today
$ 2.16
actual tax today
Fairness standard
Excise tax is “user fee” or “insurance premium” for
public costs
Who pays the excise tax?
Distribution of drinking
Number of Drinks Consumed
in the Past Month by Decile
400
Number of Drinks
316.5
300
200
100
65.5
0
0
0
0.1
0.6
2.7
9.3
1
2
3
4
5
6
7
26.8
0
8
9
10
Decile
Source: 2001-2 NESARC
(Almost) everyone comes out
ahead
Suppose we raise federal alcohol tax by 10
cents per drink.
Average is ~600 drinks/year  $60
Suppose revenues are returned to public
on per capita basis
About 93% of public would profit directly
Also there would be additional widely
shared benefits (auto insurance rates)
Should liquor be taxed higher
than beer?
Current federal tax:
Liquor: 21 cents/ounce of ethanol
Beer: 10 cents/ounce
History standard: Yes
Fairness: Probably not – beer is the drink
of younger men
Unintended consequences of
raising taxes?
Substitution to other substances? NO
(Marijuana and tobacco are more likely to be
complements)
Re-Creation of a black market? NO
(Not a serious problem, even in 1950s)
Decline in healthy drinking? DOUBTFUL
(Middle aged folks break even)
Economic burden? NO
(No job loss on balance.)
F. Conclusion




Alcohol is our leading “drug” problem
The full policy portfolio should be utilized
Evidence has accumulated over the last
25 years on efficacy of alcohol taxes
Higher prices will encourage “voluntary
self-control” and raise our overall
standard of living