After an unusual year for state legislatures, lawmakers are returning to their respective state capitals for 2021 sessions. Undoubtedly, the single biggest issues facing each state – as well as the federal government – will be the economic damage wrought by the coronavirus pandemic.
One industry – alcohol – did well amid stay-at-home orders and Zoom Happy Hours. Specifically, online sales of alcohol soared since the start of lockdowns. A 2020 report from the market research firm IWSR found “alcohol e-commerce sales will approach $5.6 billion in 2020 … up from roughly $3 billion last year.” Further, alcohol consumption among adult Americans increased. An analysis from a series of surveys of 1,540 adults conducted between April 29 through June 9, 2019 and May 28 through June 16, 2020 found alcohol consumption among participants increased 14 percent.
Unfortunately, lawmakers have paid attention.
Oregon Gov. Kate Brown’s 2021-23 budget proposal includes “an additional $0.25 surcharge on the sale of distilled spirits … beginning July 1, 2021.” The Democratic governor from the Beaver State is hoping to “generate an additional $20.4 million in General Fund revenues.”
Additionally, lawmakers in Maryland have introduced legislation to increase the “sales and use tax rate for the sale of an alcoholic beverage,” with proposed generated revenues from the tax to be deposited into a fund to provide healthcare for low-income and rural Marylanders.
COVID-19 has severely damaged state economies. The Brookings Institute projects that “state and local government revenues will decline $155 billion in 2020, $167 billion in 2021, and $145 billion in 2022—about 5.5 percent, 5.7 percent, and 4.7 percent, respectively—excluding the declines in fees to hospitals and higher education.”
To address budget shortfalls, state and local governments are likely to turn to excise taxes, including raising taxes on a product that is COVID-proof, despite alcohol taxes being regressive and unfairly burdensome for low-income persons. Moreover, the gains made by the current increased consumption of alcohol are unlikely to remain stable as most Americans’ increased alcohol consumption is due to unusual local and state lockdown orders and pandemic-spurred anxiety.
As alcohol consumption tends to increase when income increases, alcohol taxes tend to be slightly less regressive than tobacco taxes. Nonetheless, low-income persons tend to spend greater percentages of their household income on alcohol. A report from the National Center for Policy Analysis found that of three income quintiles, persons in the “bottom quintile of income earners spent 2.1 percent of income on alcohol products, on average, twice the middle quintile and more than three times the highest earners.”
A 2018 report from the Pew Charitable Trusts (Pew) examined whether sin taxes were “healthy” for state budgets. Although “alcohol revenue grew from 2008 to 2016 in many states,” this increase is attributed to higher consumption. Pew notes that long-term sustainability of tax revenue from “alcohol taxes is limited by their shared tax structure – a tax on the quantity sold, not its value, and thus requires either increased tax rates or increased consumption to generate more revenue.”
Understandably, every state will be spending their 2021 legislative sessions working towards economic recovery and figuring out how to manage budget shortfalls caused by COVID-19. It is imperative that policymakers look at sensible solutions that are proven to generate needed revenue without unduly harming low-income citizens and focus on lasting policies that can reconcile state budgets. Alcohol may have been COVID-proof, but lawmakers should not rely on the unusualness of Americans’ buzz as a long-term solution for bloated state budgets.