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What’s the most important ingredient in a frosty mug of beer? According to a January 2001 study by Standard & Poor's DRI, the largest ingredient in your lager isn’t hops or malt, but rather is a bill from the taxman. You probably didn’t know that a staggering 44 percent of the cost of the average beer is taxes. And the situation is getting worse. Too many of our elected officials are intoxicated from the money raised by state and federal beer taxes.
The problem is the spending binge that’s still underway in many state governments. A report released last Thursday by the National Conference of State Legislatures (NCSL) found that despite some budget cuts and tax increases, too many states continue to overspend for the third straight year. Twenty-seven states currently have budget shortfalls, with 13 of them having gaps greater than 5 percent of their total state budget. In total, these 27 big spenders have a combined budget hole totaling about $21 billion. Amazingly, even in this environment, spending is still out of control. Thirty-four states report that they are outspending their current year budget!
Failing to make much progress in curbing spending, at least 19 states are considering increases in taxes and fees, according to the NCSL. So far this year, they report that six states have raised cigarette taxes and two have raised beer taxes. This is on top of an already aggressive tax regime for these legal products. All 50 states already levy an excise tax on the sale of beer, and some cities and counties follow suit with their own taxes as well. There’s a multiplier at work, too, because most states and many local governments also impose a general sales tax, which is added to the final tab at the register. Paying taxes on top of taxes-- talk about a tax hangover.
Pennsylvania, home of Iron City and Rolling Rock, and a good number of beer drinkers, is not surprisingly the flashpoint for the fight over beer taxes. After all, western PA farmers led the Whiskey Rebellion in 1794 in opposition to punitive federal taxes on whiskey stills. Fast forward to 2003, where Keystone State Gov. Ed Rendell wants to raise taxes on beer by 14 cents per six-pack, more than tripling the state tax from 8 cents to 25 cents. Meanwhile, in March Congressman Phil English (R-PA) introduced H.R. 1305, a U.S. House bill to repeal the federal “luxury” tax on beer. Rep. English has the right idea-- policymakers and the public should support repealing beer taxes, not raising them. It’s time to give middle and working class beer drinkers a break.
After all, Rep. English’s bill would only fix a past wrong. In 1990, Congress voted to raise taxes on goods like luxury automobiles, furs, jewelry, yachts, and private airplanes, and to double the federal excise tax on beer for $9 to $18 a barrel. These “luxury” tax hikes destroyed tens of thousands of jobs and nearly wiped out the U.S. boat-building industry. The 1990 tax increase also cost some 60,000 people their jobs in the brewing, distributing, and beer retailing industries, according to an analysis by DRI/McGraw-Hill (1993). Congress recognized the sheer stupidity of the 1990 luxury tax increases, and has since repealed them—except for the “luxury” tax on beer.
“Luxury” should be in quotes because beer excise taxes are unfair and regressive, hitting poorer consumers hardest. That’s why liberals should be clamoring for a beer tax cut. A study by the class warriors at Citizens for Tax Justice found that people whose family incomes are in the bottom 20 percent pay a tax burden from beer excise taxes 5 times greater than people with family incomes in the top 20 percent (State and Local Taxes Hit Poor & Middle Class Far Harder Than the Wealthy; June 26, 1996). That’s because poorer people use a greater proportion of their income for consumption, and more than half (52 percent) of all beer is purchased by families with incomes of $45,000 or less. And now states want to increase this tax. Where is all the liberal outrage?
The fact of the matter is that states and the federal government have an insatiable appetite for new spending, and they especially love to tax the working man’s favorite drink-- beer. It’s time to give Joe Six Pack a break; let’s slash the beer tax.