Senators propose lowering alcohol tax

Economics is fairly straight forward on many items.

1. Taxes on luxury goods can be tricky. There are many substitutes - so you can't impose as large of a tax as you want (like on cigarettes) and expect people to still buy them. A small tax like this (or even a 1% increase in the sale's tax on alcohol) is likely to do essentially nothing.

2. From the perspective of levying the largest amount of taxes that we can without hurting social welfare, tax on alcohol should probably be raised across the board (to consumers). This isn't my specialty, but my intuition is that you're much better off taxing consumers directly via sales tax on alcohol than taxing the producer. Not saying they shouldn't have taxes, I am just saying if the goal is to raise revenue, alcohol (in each sector - i.e. Beer vs wine vs liquor) is relatively inelastic (as price increases you are not that likely to decrease the amount you are purchasing), and so adding a tax to the consumer is not likely to decrease sales, and so tax revenue is likely to increase. A tax across all alcohol is more safe than on just beer, otherwise you might switch (with a large enough change) to a different type. Again, the type of tax here is so small it doesn't not seem important at all.

3. You cut taxes on producers when you want to incentivize them to increase hires, increase investment, etc.. The economy is doing well. The beer sector is doing very well. I don't see what this tax break would accomplish at all. Additionally, it seems far to small to be incentivizing.

4. Someone mentioned this being too small of a tax to pass to consumers (right now). You're correct that in the short-run there are aspects of production that are fixed, including all the SKUs etc that you mentioned. You're absolutely right that unless other changes come at the same time, this is not likely to be passed to consumers for some time.

 

Taxing alcohol, since at least the Civil War has been an easy way for government to raise money. Tax breaks for smaller breweries make sense based on their economic impact on their local communities. There is enough distasteful crap in the existing tax bill - like removing the excise taxes on owning and maintaining private jets - that I am willing to suffer through paying a little more for beer and the stupid tax gives me something to companion about that most people agree with.

 

You can push that idea of govt. support by alcohol tax back to the post Revolutionary War period when a tax in distilled spirits was introduced.

https://en.wikipedia.org/wiki/Whiskey_Rebellion

 

Alcohol taxes also helped fund the Civil War - especially in the north and you could write a whole book on the way government taxes impact beer - such as in England - and the impact on the strength of the beer and other qualities. The required research is incredibly dull but the results can be interesting.

 

Agree completely.

In effect the fed govt. used alcohol tax (one of the first taxes passed by the new congress) as a major source of funds untill the introduction of the personal income tax.

 

May as well throw scotch, bourbon and cannabis into that group also.

 

Taxing food is really regressive, but everyone eats. Like revenue on a plate. Taxing alcohol makes more sense, it's "less" essential....I just generally wish that there was more certainty/accountability in knowing how well revenue is managed at any level of government. It works nicely locally, mostly.

 

According to failing Vox, lower alcohol taxes kill people

https://www.vox.com/policy-and-politics/2017/11/3/16600770/alcohol-tax-increase
Alcohol is already linked to 88,000 deaths each year. The Senate bill could add 1,550 deaths to that annual toll.

I'm all for lowering taxes, but more importantly cut spending

 

any data that actually supports thus?

 

Regressive taxation, like sales tax and tax on luxury goods, is always a bad thing because it requires lower income individuals to effectively pay a higher tax rate than upper income individuals. Any elimination of regressive taxation is good, especially when offset by increases to marginal income tax rates and increases in property taxes.

However, this doesn't appear to be a tax paid by individuals and is instead paid by the producer? If so, I wouldn't expect this change to have any effect on the price of beer for the individual since any company would rather pocket this savings as profit, only lowering prices as needed to compete with other producers.

 

What?

I think one of us might be confused (not sure if it is me or you). I've seen a couple different definitions for regressive taxes - one comes from the idea of regressive transfers (redistribution from the poor to the wealthy, i.e. creating more inequality - vs. progressive transfers which are transfers from the wealthy to the poor, i.e. creating more equality). The other (i am admittedly less familiar with), is the one that you are referencing.

I'm not quite sure that I follow. Tax is not my field, and I am fairly unfamiliar. It's not clear to me why taxing luxory goods is a bad thing (this is a good thing if you are in favor of progressive transfers as I understand it). It's also not clear to me why a sale's tax effectively makes lower income individuals pay a higher tax rate. Any clarification would be appreciated.

 

I'm confused by the luxury goods statement as well. Maybe @juliolugo meant sin taxes, which can be construed as regressive. For the sales tax, it's a matter of what percentage of a person's income is required to pay the tax:

Say person A makes $600/week and spends $100 on goods at 6% sales tax. Their effective tax rate is 1% ($6/$600).
Person B makes $1800/week and spends that same $100. Their effective tax rate is 0.33% ($6/$1800).

 

I'm less familiar with luxury goods taxes, but even if they are taxes on only certain luxury items, the taxation is still regressive as the tax as a percentage of income becomes smaller as income increases. For me, limiting the luxury goods tax to items that are unlikely to be purchased by lower income individuals isn't sufficient (I'd rather do away with the tax and concentrate on taxing income). Sin taxes are certainly regressive (and can be seen to imply, as income increases, the less we care about "sinful" behavior). Progressive taxation ensures that tax as a percentage of income increases as income increases, which some (like myself) consider to be fair.

 

Well, the tax being reformed is the Federal Excise Tax (FET) on beer (not the state excise tax of Wyoming or any other strate); that is $18 per barrel. January 1, 1991 the FET on beer doubled from $9 to $18 (its a graduated scale - $18 is the highest rate). As a result, beer prices rose, on average, ~6%. If anyone is interested in other outcomes of the historic increases, The National Bureau of Economic Research has a lot of data on the topic (you may agree or disagree with some of their analytic methods).

I wonder if the lowering of the FET will have the same impact?

 

Another handy reference - though does not include the one-off rates in some states
https://www.google.com/search?q=bee...8&hl=en-us&client=safari#imgrc=Tqp1d3Hycgg5JM:

 

Alcohol taxes are a big part of why Prohibition was repealed too. The loss of alcohol taxes to fund government programs was noticed by politicians. Removing an unpopular law and adding more tax revenue without increasing personal income taxes was a compelling argument that won over many politicians who previously supported or were moderate on Prohibition [in addition to it being obvious the law wasn't working at all ].

 

Here's NPRs take on this part of the tax overhaul:
https://www.npr.org/2017/12/01/567446997/tax-bill-would-give-small-brewers-a-big-break

 

A link from CNN does not qualify as "fact"

 

God forbid they have more money to expand, hire new employees, produce, more product, etc. All of which provides more tax revenue through payroll taxes, sales tax, etc. Not to mention, provides jobs. God forbid...