Alcohol Taxation and Its Impact on the Economy

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Table of Contents

Introduction
Discussion
References

Introduction

The article selected of analysis discusses the impact of alcohol taxes on consumption level and alcohol-related diseases within young adults and teens. In order to prevent consumption of alcohol by young people, the federal government decided to increase taxes on all alcohol beverages. It is expected that increased taxes and prices will limit consumption of alcohol and prevent many people from deaths.

Discussion

The increased taxes are levied on consumers. “Policy makers have some indirect control over price via state and deferral excise taxes” (Hollingworth et al 2006, p. 300). The administrative convenience and relative certainty of collection of taxes imposed on business is a compelling practical consideration which has moved legislatures to rely on business taxes. This is especially clear in the case of sales and use taxes where the tax is supposedly only nominally imposed on business as a means of collecting the tax from the purchasers. So far as state and local taxation of business is concerned, the choice of and relative reliance on the several possible forms of business taxation is in much better balance than with respect to federal taxation of business. The researchers admit that: “Despite being raised to $18.00 per barrel (32 cents per six pack) in 1991, the increase in excise tax has not kept pace with inflation (Chaloupka, 2004), resulting in a 70% erosion in real tax dollars. By 2005, an additional excise tax of $0.88 per six pack would be needed to return to the 1951 level of taxation” (Hollingworth et al 2006, p. 300).

The aim of the increased taxes is to limit alcohol consumption and prevent young people from such problems as alcoholism. Where business is merely a tax collector, as for sales and purchase taxes to be added to the prices paid by purchasers, the taxes taken initially from vendors may be regarded as taxes on individual consumers. But both taxes on business and taxes collected from business are essentially impersonal in their application, and justice among individuals may be impossible to attain. On the one hand, taxes do not have a great impact on supply but they reduce demand for the product. The authors admit that economic goals may not be decisive in taxation. Political pressures are always present, and political expediency may prevail over rational economics. Then, too, as revenue needs have increased, our governments have levied a greater diversity of taxes, regardless of economic consequences (Freeland et al 2003). The overlapping of taxes imposed by different levels of government has also increased in the competition for additional revenues. The study shows that: “Their estimates of the price elasticity (elasticity = % change in participation rate / % change in price) of alcohol participation were relatively stable ranging from -0.12 to -0.28 in their preferred empirical models. The price elasticity of heavy episodic drinking participation was more heterogeneous, ranging from -0.04 to -0.51” (Hollingworth et al 2006, p. 300).

The authors underline that tax theory has increasingly emphasized the necessity for the taxation of business and individuals to be consistent with economic and social objectives, whether taxation be employed for revenue or for regulation. Economic stability and growth are commonly cited objectives. Growth of the economy requires a consideration of the effects of taxation on manufacturing, trade, employment, investment, consumption, and other economic activity. To a considerable extent the local, state, and national economies are competitive with other economies. Industries also compete with industries and taxpayers with taxpayers. “This is a conservative assumption, as a sharp rise in the price of alcohol will deter some adults from increasing alcohol consumption” (Hollingworth et al 2006, p. 300). Agreement has not been realized on the implications of such objectives as full employment, stability, and growth, and the best means for advancing these goals. Taxes on corporations thus become sales taxes, in effect, whether they are imposed on net income, capital, real estate, or other objects. Sometimes the diffusionists, who are many, suggest that no matter how taxes are imposed they finally hit the ultimate consumers through price increases (Freeland et al 2003).

The floor tax could be imposed on inventory of alcohol package. The discounts are not applied to floor tax thus it would help alcohol producers to ensure stable income and price sensitivity. For producers, it would be possible to submit floor tax returns for their stores. The floor tax would benefit producers of alcohol and help the government to protect big businesses from bankruptcy. In general, revenue measures are frequently imposed with some regulatory intent, and some are adopted with regulation, rather than revenue, in mind. It has sometimes been remarked that the purpose of taxes on business is “to give business the business,” implying punishment by taxation (Freeland et al 2003). For economic, moral, political, or other reasons particular taxes may be selected, either as penalties or rewards. Tariffs, licenses, sumptuary imposts, graduated income taxes, and other taxes may be employed to promote certain objectives. The increased taxation on alcohol products shows that taxation is a blanket, rather than a selective, measure, has commonly been ignored, and it may be chosen to promote certain objectives when only carefully selected and applied measures might be effective. If the good and the bad are to be separated for reward and punishment, someone must judge the taxpayers and mete out the particular encouragement or discouragement required. For one reason or another, tax gadgets and tax incentives have been found to have only a limited economic usefulness.

References

Hollingworth, W. et al (2006). Prevention of Deaths from Harmful Drinking in the United States: The Potential Effects of Tax Increases and Advertising Bans on Young Drinkers. Journal of Studies on Alcohol 67 (1), 300.

Freeland, D.J. et al. (2003). Fundamentals of Federal Income Taxation (University Casebook Series) Foundation Press; 13th edition.

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Alcohol Taxation and Its Impact on the Economy

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