Higher Taxes on Alcohol

As you’ve probably noticed, but nobody in Washington really wants to talk about, some time after this recession ends we’re going to need substantially higher tax revenues. And some Tweeting this morning from Reihan Salam pushes me to once again remark that one of the very best kinds of tax increases we could pursue would be higher taxes on alcohol. Personally my low-carbon, high-booze lifestyle makes me wish that the policy case weren’t so clear. But it really is clear. As Mark Kleiman has written:

The average excise tax (Federal plus state) on a can of beer is about a dime. The average damage done by that can of beer to people other than its drinker is closer to a dollar. Those costs consist mostly of crimes, accidents and the health care costs redistributed through insurance — and the one-dollar figure doesn’t count the costs to the families and friends of drinkers.

Kleiman says that this would be a particularly effective way of controlling over-indulgence by teenagers (who, after all, barely have any money) and would allow us to get rid of the not-really-enforced minimum drinking age and eliminate the culture of fake IDs and casual law-breaking that it encourages.

In distributive terms, data from the Consumer Expenditure Survey indicates that an alcohol tax is pretty progressive for a consumption tax, and certainly far less regressive than taxes on tobacco (which, to be clear, I also favor):


The poor consume a much larger share of their income than the rich. Indeed, total expenditures from the bottom quintile exceed the income of the bottom quintile. So all consumption taxes are regressive with respect to income. But you can also look at different categories of goods as a share of expenditure, and you see that the richer you get the larger the share of your consumption going to alcoholic beverages becomes.