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LONGWELL: No more drink taxes

D.C. can fill city coffers by expanding freedom

- - Thursday, May 10, 2012

How would you like to pay more the next time you share a drink after work or at dinner? Faced with a budget shortfall of $172 million, the District of Columbia is considering a new proposal to impose a roughly 6-cent-per-drink increase in the excise tax on all alcoholic beverages. Will the tax increase close the fiscal gap? Hardly. It'll only clear about $20 million. But after considering a better way to raise cash - allowing Sunday sales for D.C. liquor stores - council member Jim Graham has fallen prey to the lazy legislator's favorite easy-money scheme.

It's not too late to restore sanity to the budget process: Mayor Vincent C. Gray still prefers letting bars stay open for an extra hour. Before it is too late, it's imperative that District residents and legislators understand that eliminating blue laws, which would allow the sale of alcohol on Sunday, is the fair, effective way to raise revenue without heaping an additional burden on taxpayers, employers and the employees who rely on them.

Government's insatiable appetite for money has long fueled increases in excise taxes, and the District's budget gap has offset traditional support for the city's blue laws. When it comes to filling city coffers, setting aside antiquated and ineffective regulations is a far more productive choice than increasing taxes on alcohol, as misguided legislators have done often.

The argument in favor of Sunday sales stands on its own merit. Increased restrictions on alcohol like those blue laws impose don't reduce drinking or eliminate drinking problems.

Consider two case studies: Colorado and Georgia. In 2008, Colorado ended one of the state's blue laws. Critics howled that the ability to buy alcohol on Sunday would fuel more drunken driving and more crashes on the road. Instead, Sunday drunken-driving fatalities dropped by more than half over the next two years.

In 2011, Georgia removed its statewide ban on Sunday sales, permitting city-by-city and county-by-county votes on blue laws. Overwhelmingly, voters chose to overturn them. Those voters have economics on their side: A 2007 study published in the National Tax Journal showed that after repealing Sunday sales bans, the average state netted a 4 percent to 5 percent per capita increase in revenue.

That's not a silver bullet for busted budgets - nothing is - but unlike alcohol taxes, Sunday sales consistently lead to increased economic activity. Alcohol tax increases are counterproductive even on their own terms, discouraging the very spending that powers the economy and creates a larger tax base. Hard-core drunks might keep laying down their money no matter how high the tax, but ordinary consumers are price-sensitive, as restaurants know well. The lesson is fresh, as the District just raised alcohol taxes on consumers last year.

If higher taxes lead to less consumption, chances are the tax will not generate the amount of revenue Mr. Graham predicts. In Kentucky, for instance, the state's 2009 alcohol tax increase reduced the alcohol tax revenue by 55 percent just one month after the increase went into effect.

Because the economic case for increasing alcohol taxes is so weak, it's not surprising to see a moralistic argument creep back to the forefront. Policies such as increased alcohol taxes, Sunday sales restrictions, happy-hour bans and increased use of sobriety checkpoints are all part of the same neo-prohibitionist mindset that aims to reduce alcohol consumption, even among responsible adults.

However the D.C. Council chooses to settle next year's budget, tax increases on alcohol should be left out of the equation. What the city needs is a way to increase revenue while boosting economic activity, not squeezing taxpayers and those who serve them drinks.

Sarah Longwell is the managing director of the American Beverage Institute (nodrinktax.com).