Are We Taxing Alcohol Properly?

For many in the U.S., the relationship between  alcohol and productivity is perceived to be an inverse  one(that is, the more one imbibes, the less productive one becomes).  However, a new study done by the Economist seems to indicate otherwise.  When dividing various countries up by GDP per capita, The Economist was unable to find any clear correlation between alcohol consumption and productivity. The article which I read based this conclusion upon a comparison of the countries with the highest per capita GDP with those that had the highest rate of alcohol consumption per capita.  In doing this, The Economist found no identifiable correlation, either positive or negative between the amount of alcohol a country consumes and its GDP.  In fact, The Economist did find that the country with the highest GDP per capita (Luxembourg)  also had the highest alcohol consumption per capita. However, this appears to be more of a strange coincidence than any firm correlation between alcohol and GDP (as all the countries in the top quintile of GDP averaged 9.8 liters per head annually, significantly less than Luxembourg’s average).

This data has dramatic implications in the world of U.S. tax policy.  Currently, in the United states, alcoholic beverages are amongst the highest taxed commodities(with hard liquor being hit the hardest with such taxes). One need look no farther than our own state to realize the crippling effect which taxes have had on the alcohol industry.  In Washington, hard liquor is taxed at over thirty five dollars per gallon, with additional sales tax levied on it as well.  With these findings published in the Economist, I think it may be time that we re-evaluate the extent to which we tax the sale of alcohol.

I believe that taxing liquor should be done. Alcohol,  to a great extent, represents a negative externality.  In 2012, more than ten thousand Americans died in alcohol-related car accidents, some of whom were definitely sober at the time.  Also, consumption of alcohol has been linked to increased rates of domestic violence as well as complications during pregnancy.

This being said, I also believe that much of our decision to tax liquor and other forms of alcohol in the way that we do comes not from a desire to correct the negative externality which alcohol consumption imposes upon society, but rather from subscription to a set of morals which dictate that alcohol consumption is inherently both unproductive and (perhaps more importantly) “wrong”.  That, for me, is the reason why the article in The Economist is so pertinent.  It contradicts years of commonly held belief that a worker who imbibed was, by his or her very nature unproductive.  It is with this in mind that I would like to propose a new method of taxing alcohol and any other “vice”.

I believe that we should levy taxes upon things like alcohol, marijuana, tobacco, gambling and prostitution in a way which is entirely divorced form morality.  Instead, we should ask ourselves, “what do these things cost society?” and thereafter use taxes to correct these costs.

Article: http://www.economist.com/blogs/buttonwood/2014/06/economic-growth-and-alcohol

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2 thoughts on “Are We Taxing Alcohol Properly?

  1. I like your proposition about the new way we should tax substances. I think it is definitely important to take into consideration the detrimental affects of these drugs like how 10,000 deaths were solely related to alcohol. It would be interesting to see the process the government undergoes when deciding how much to tax a specific substance. Are you thinking of creating taxes more based on the social costs of these substances?

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  2. jaffeas says:

    I agree that substances should be taxed based on the cost of society, but who’s to say that the current tax system doesn’t do just that? The high taxes on alcohol are problematic for people like you or me who are getting charged more than for other liquids, but as you said yourself, the negative externalities are disastrous.
    Morality plays a role in what is socially justifiable, and in my mind it is very hard to separate the two. Hopefully when deciding these tax rates, our elected officers take into account both the social and the moral implications of their decisions.

    Like

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