Washington Booze Taxes: A Little Bit Lower

On June 30, 2007, the state excise tax on liquor sales will be a little bit lower. A temporary tax of 42 cents per liter expires at the end of this biennium. The temporary tax, which brought in just under $10 million a year, is peanuts in the grand scheme of things: in fiscal year 2004, Washington collected about $190 million in alcoholic beverage taxes.

And state taxes are only part of the picture. Washington is one of less than 20 states that are "control states," meaning the state government is in charge of selling alcohol to consumers. Control states typically charge consumer not just a state excise tax, but also a "markup" that takes the place of the profit-seeking markup on booze purchases in non-control states. The $190 million in excise taxes for FY04 is dwarfed by the $400 million or so in "markup" revenues the state collected that year. (Although it's unfair to think of the entire $400 million markup as a government "tax"; some, if not all, of that markup would end up as profit for liquor store owners if Washington allowed private companies to sell liquor.)

Why worry about this? For starters, liquor taxes are regressive, hitting low-income Washington consumers much harder, as a share of income, than middle- and upper-income families. To be sure, alcohol taxes, like cigarette taxes, serve a social function, helping to reduce consumption of the taxed item. But for those who still choose to imbibe, it's the low-income drinkers who will be hit hardest.

And most observers of Washington's historical tax policy debates will suspect that the real reason why Washington relies so heavily on alcohol taxes-- and has chosen to balance its budget in recent years through temporary tax hikes on alcohol like the one scheduled to expire on June 30-- is because lawmakers have refused to discuss bringing the tax system into the 21st century by introducing a broad-based personal income tax. From this perspective, the expiration of this $10 million excise is a good thing simply because gives policymakers a chance to get this choice right the next time the economy slows down, and enact tax hikes based on the defensible principle of "ability to pay" rather than the indefensible principle of "screw the poor."