Thursday, October 8, 2009

Refuting Beer Taxes

The rationale behind Terese Berceau's proposed beer tax increase is outlined on the following website:

How ridiculously low is the Wisconsin beer tax

Below are my responses to some of her claims.

Berceau: the Wisconsin beer tax was created in 1933 (at $1 a barrel).
RePublic: in 1933, Wisconsin implemented a regressive tax that increased at each stage of the state-mandated three-tier supply chain. The tax itself was subject to sales tax.

Berceau: it has only been raised once ― to $2.00 a barrel in 1969 (36 years later).
RePublic: Wisconsin has a pretty good track record of supporting an industry that creates a lot of jobs.

Berceau: if increased to inflation from 1933, it would be $16.12 a barrel.
RePublic: if you believe this number, a six-pack of Spotted Cow would cost you $8.44 per 6-pack before sales tax. Here's the math: $7.99 (current price) + [$16.12 per barrel - $1.33 per barrel (the current average beer tax that New Glarus probably pays)] * 1.3 (distributor markup) * 1.3 (retail markup) / 31 gallons per barrel / 128 oz per gallon * 12 oz per bottle * 6 bottles per 6-pack = $8.44.

Berceau: if increased by inflation from 1969, it would be $10.85 a barrel.
RePublic: Inflation is already included in the cost of beer via ingredient expenses, labor expenses, utility expenses, occupancy expenses, marketing expenses and many other expenses. If we use inflation to justify raising the beer tax this year, will we keep doing it in subsequent years?

Berceau: the Berceau proposal is $10 a barrel.
RePublic: will you continue to support New Glarus when Spotted Cow costs $8.29 per 6-pack or will you downgrade to something cheaper and much less Wisconsin?

Berceau: it has been 38 years since the last increase!
RePublic: would you elect a president who campaigns to raise taxes because it hasn't been done a long time?

Berceau: Wisconsin’s beer tax has lost 83% of its value due to inflation since 1969.
RePublic: this is a good thing. Beer tax = a large number of responsible drinkers pay to reduce problems caused by a small number of irresponsible drinkers, which helps the general public. No beer tax = the general public pays to help the general public. If raising taxes during a recession is really the best way to combat drunk driving, raise a tax that affects the entire population fairly.

Berceau: Wisconsin has the third lowest beer tax in the nation (6.5¢ per gallon)(3.6¢ a six-pack) (0.6¢ a 12-ounce bottle).
-Second lowest: Missouri (6¢ per gallon) (headquarters of Anheuser-Busch)
-Lowest: Wyoming (1.9¢ per gallon).
Our neighboring states charge two to three times more.
- Illinois: 19¢ per gallon
-Minnesota: 15¢
-Indiana: 12¢
-Michigan: 20¢
RePublic: my mom used to ask me "if everyone else jumped off a bridge, would you do the same?"

Berceau: the great majority of Wisconsin beer producers pay very little in state beer tax.
RePublic: that's sort of true because the beer tax is really paid by consumers. Brewers, distributors and retailers can deflect tax increases by raising their prices. If they didn't, they'd go out of business. Unfortunately, most consumers can't just raise their incomes.

Berceau: 79% of all beer producers in Wisconsin pay between $0 and $5,000 annually in state beer tax.
RePublic: 79% of all beer producers in Wisconsin are very small companies.

Berceau: 64% of Wisconsin beer producers pay less than $1,000 annually in state beer tax.
RePublic: 64% of Wisconsin beer producers are extremely small companies.

Berceau: only 4 out of 66 beer producers in Wisconsin pay more than $100,000 in annual state beer taxes. (Miller alone pays over a $1 million).
RePublic: as a startup brewery, RePublic be lucky to sell $400,000 of beer. The business shouldn't be paying anywhere near $100,000 in taxes.

Berceau: over 92% of all beer producers in Wisconsin pay only half ($1.00 a barrel) of the Wisconsin beer tax (because they produce less than 50,000 barrels a year). Only Miller is taxed entirely at the full $2.00 a barrel tax. Leinenkugel, Pabst, New Glarus and Mike’s Lemonade are taxes at a combination of the 50% and 100% rate.
RePublic: wow, reducing taxes to small businesses encourages... small business! Small breweries tend to produce flavorful beer, which discourages binge drinking. When was the last time you saw somebody pound a case of Lake Louie Porter or stagger down the street with a bottle of Sprecher Barleywine in a paper bag?

Berceau: only 31% of all beer produced in Wisconsin is taxed at all! 69% is exported Wisconsin tax free (5.9 million barrels exported of 8.5 million barrels produced).
RePublic: not true! All breweries pay taxes to the states they export beer to. If you start charging taxes for beer that isn't sold in the state, the double taxation will render Wisconsin's breweries unable to compete in out-of-state markets.

Berceau: Miller, alone, generated 77% of all of our beer tax revenue from in-state producers. The top four, Leinenkugel, Miller, Pabst and Mike’s Lemonade account for 95% of all of our revenue from in-state producers.
RePublic: a single Miller brewery - they have several - brews more beer in one day than J.T. Whitney's brewed in its entire fifteen-year existence. This is like saying "a person who makes $200K/yr pays a lot more income tax than somebody who makes $50Kyr."

Berceau: the Berceau proposal is to raise the state beer tax from $2.00 a barrel to $10 a barrel. Or, from the current 0.6¢ a 12-ounce bottle, to 3¢ a bottle. It would raise the state tax from the current, 3.6¢ a six-pack to 18¢ a six pack.
RePublic: these numbers are what the brewers will pay, not what the consumers will pay. To figure out the consumer cost increase, multiply all of these numbers by 1.3 twice.

Berceau: the Berceau proposal would raise our revenue to approximately $50 million.
RePublic: if you assume that every brewery except Miller currently pays $1/barrel in beer tax and that the consumption of Wisconsin-made beer won't change after the new tax, then the increase in revenue will be about $50 million. Those are a couple of huge ifs, though.

Berceau: the average drinker will not even feel the effect of an increase.
RePublic: as long as they're earning the same job compensation as a congresswoman.

Berceau: beer producers are not concerned about the “average” drinker. They know that most of their revenue comes from price-insensitive heavy drinkers.
RePublic: state representatives are not concerned about the "average" constituent. They know that most of their votes come from campaign spending, which is funded by special-interest groups. Seriously, though, who wants their brewpub to be known as the place where drunk patrons get into fights? Who wants their brewery's name associated with fatal car crashes? Who wants to contribute to the alcoholism that tears up families? Not only is promoting heavy drinking an abhorrent character accusation, but it's simply bad business.

Berceau: 10% of all drinkers consumer 43% of all beer. 20% of all drinker consumer 85% of all beer.
RePublic: what constitutes a drinker?  Somebody who's admitted to having a drink in their lifetime?

Berceau: even for a heavy drinker who consumes a six pack a day, the Berceau increase would only cost you an additional $1 a week.
RePublic: Nope, it would cost an additional $1.72 per week ($89.30 per year) after distributor and retailer markups of 30% each. That's a lot, considering we're talking about a tax on a product instead of the product itself.

Berceau: heavy and addicted drinkers who account for most of the beer consumption in the U.S. rightly pay the most in beer taxes, since their drinking imposes the greatest cost on society.
RePublic: again, how is the claim (heavy drinkers account for most of the beer consumption in the U.S.) substantiated? Is it because people who drink two beers a day are considered a heavy and/or addicted drinkers? If this is really about sticking heavy drinkers with the bill, they should literally bill heavy drinkers when they cause problems and leave the rest of us alone.

Berceau: if a 3¢ per bottle tax causes you a financial burden, you have greater problems to worry about than the beer tax.
RePublic: yes, poor people, the discussion regarding this 5¢ per bottle tax increase is above you. You can add it to your list of problems, but you have no business worrying about it.

Berceau: the moderate-drinking majority of drinkers consume relatively little alcohol and pay a negligible amount of alcohol taxes.
RePublic: moderate drinkers would still be taxed more than non-drinkers to fix a problem that neither of them cause, which isn't right. Even if the proposed tax increase was $0.0000001 per barrel, the principle of it would still be wrong (and a waste of the government's time).

Berceau: alcoholic beverages are cheaper (25% less after adjusting for inflation) today than they were in the 1960s and 1970s. (Institute of Medicine, National Research Council)
RePublic: Finally, a source! Too bad the statistic is meaningless in terms of justifying a tax hike, unless increasing the cost of living is a good thing.

Berceau: the alcohol industry is financially dependent upon underage and pathological drinking.
RePublic: in my year and a half at J.T. Whitney's, I saw exactly one instance of knowingly serving an underage patron - an 18-year old who was with his parents. However, I'll admit that an underage drinking problem exists. It doesn't have much to do with the price of beer, though, and I'd wager that the majority of underage drinkers - like I did when I was underage - consume the cheapest alcohol they can get their hands on. With bottom-shelf vodka already being cheaper than beer on a per-volume of ethanol basis, this tax isn't going to do much to prevent underage drinking.

Berceau: nationwide, 37.6% of alcohol (by cost) was misused or illegally consumed ($48.3 billion). Another study put it as high as 48.8%.
RePublic: these are difficult statistics to track. Can we see who conducted the studies, please?

Berceau: Wisconsin ranks 4th highest per capita for alcohol consumption from beer (Nevada, New Hampshire and Montana rank higher).
RePublic: let's stick to beer here. According to a 2007 article in TIME Magazine, Wisconsinites drank an average of 28 gallons per year. That's 0.8 12-oz bottles per day, folks. Per-capita alcohol consumption isn't the problem.

Berceau: Wisconsin is listed among the “Fatal Fifteen” states for the highest underage drinking deaths by the National Safety Board. Over 60,000 Wisconsin residents receive publicly funded alcohol treatment. Over 44,000 OWIs and PACs (prohibited alcohol content) violations in Wisconsin in 2006. 6,000 alcohol-related driving injuries in Wisconsin in 2005. 369 alcohol-related driving fatalities in Wisconsin in 2005. Alcohol is related to the crimes of about half of Wisconsin’s 22,000 prisoners. 70% of our 22,000 prisoners require alcohol or substance abuse treatment.
RePublic: now we're getting to the real problem - our drunk driving laws are a joke. Apparently we're giving plenty of citations, but they're not helping much. It sounds like an increased beer tax would just fund more of the same (if we assume that our legislators are remotely capable of following through on a proposed earmark).

Berceau: the $9.7 million raised by the state beer tax last year covered only a fraction of treatment costs. That doesn’t even include the $825 million in annual alcohol-related heath care costs that get passed along to Wisconsin taxpayers. It doesn’t count the estimated $2.7 billion in state:
-Policing and court costs
-Incarceration costs
-Traffic crash costs
- Lost productivity costs
-Academic failure costs
-Premature death costs
RePublic: beer tax shouldn't cover the whole treatment cost because every person benefits from it regardless of the amount of alcohol they consume.

Berceau: each Wisconsin resident pays only $1.82 a year in beer taxes.
RePublic: each Wisconsin resident should pay $0.00 a year in beer taxes.

Berceau: but also $18.64 in alcohol treatment costs …and $154 in alcohol-related healthcare costs $500 in alcohol-related criminal justice and societal costs. Alcohol abuse and addiction cost the nation an estimated $220 billion in 2005. …more than cancer ($196 billion) …and more than obesity ($133 billion). …and
RePublic: regardless of the integrity of these statistics, it's common sense that a small number of problem drinkers can add up to big money. Why are we trying to match the costs with unfair taxes instead of doing things that could reduce them?

If you'd like to weigh in on the official debate, go to the State Capitol, Room 417 North (GAR), on 10/13 at 10am.


Gage Mitchell said...

Thanks for the breakdown Joe.

My question is, what would a beer tax due to control underage drinking and alcohol related accidents and crimes? I don't see the connection.

If the whole point of this is to raise more money to pay for alcohol related problems, why don't they work on better drunk driving laws and higher fines for alcohol related crimes?

The problem is with the people who buy and consume a lot of cheap alcohol. So why tax people who already struggle to afford a six pack of high quality, Wisconsin beer.

I moved to this city/state in a large part because of the beer community, and I'm sure I'm not alone there. If this tax hike makes Wisconsin beer difficult to afford and runs small breweries out of business, I sure as heck would find fewer reasons to live through the miserable winter here. And if residents leave to go find a better beer community, you lose a lot more taxes than you're hoping to gain.

See you next Tuesday!


Joe said...

Hey Gage, I don't think it would do anything to reduce alcohol-related problems. It would just mandate that moderate drinkers shoulder a disproportionate amount of the resulting financial burden (if the revenue gets used for that at all - if the tax hike passes, we'll see if the people "cleaning up the messes" receive any extra funding).

Anonymous said...

Joe, you make some very valid points.
Well done.

So, did you actually SEND this to her, or is it just going to be parked on your blog?

Joe said...

I contacted my representative and sent this to a bunch of local beer enthusiasts, but I haven't sent it to Ms. Berceau. Even if she sees the light on this issue, it's her job - as a politician who made a public spectacle about something - to maintain her views in the face of all evidence. I'll be at the hearing tomorrow, though.

Bill said...

Rep Berceau proposes the newly raised tax money be segregated so it can be used to pay for additional law enforcement and for drug and alcohol treatment and prevention programs.

According to the legislature's own analysts at the Wisconsin Legislative Fiscal Bureau, the state of Wisconsin's current budget robs the state segregated funds of $240 million to help augment the general fund. In the last four budgets (including the current budget) our legislators took over $2 Billion from segregated funds to pay for general purpose state expenses. Our legislature has a poor track record of using funds for their intended purpose. EVEN IF you agreed that taxing all beer drinkers for the misdeeds of a few is good public policy, can we really believe that these new tax revenues would be used for the still-to-be-named agencies and programs?

I don't think so.

And it's still bad public policy to punish all for the misdeeds of a few.


Bill said...

Here's the source for that last comment:

jkmartin said...

Thanks for laying out the details of this debate. I'd like to throw my two cents in, without weighing in an opinion:

"Berceau: the average drinker will not even feel the effect of an increase.
RePublic: as long as they're earning the same job compensation as a congresswoman."

Members of the 2009 Wisconsin Legislature receive an annual salary of $49,943 (Legislative Reference Bureau brief 09-4). The quoted post makes it sound like legislators like Berceau are living fat compared to the average citizen, when that's not really the case. Granted, $50K/year is a healthy living by anyone's standards, but I don't think anyone would consider it that much greater than the average worker's annual wages. Presenting it that way just seems to distort reality a bit and could weaken the argument without really adding much of value to your points. Just sayin'. And, no, I'm not a legislator (though I do work for the legislature).

Joe said...

Hey jkmartin, you're right that state representatives aren't huge wage earners. However, the per capita income of Wisconsin from 2005-2007 (the most recent U.S. Census Bureau data available) was $25,742. That's all I'm sayin'.

Beantown Brews said...

Good luck in WI. We just got nailed with a 6.25% sales tax on beer in MA.

Can I afford it? Sure. Will it be used for something good? Mayhaps. Am I upset about it? Well, if it weren't for the beer, I'd have a rather bad taste in my mouth. Tastes bitter...

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