There is a fine article in the today's
Wall Street Journal titled, "
This Tax Is for You: A Levy on Joe Six Pack." Politicians in Oregon are attempting to close a $3 billion state budget deficit caused in part by a 27.9% increase in spending with a 1,900% increase in the beer tax. The sin tax on beer will go to the righteous purpose of drug treatment. Recognizing that the demand and supply are probably inelastic, the tax will minimize deadweight loss and maximize tax revenues, but that may be the only good thing about the tax increase. It is a regressive tax, meaning that the tax rate as a percentage of income goes down as income goes up, placed on the working class by one of the two major parties that profess to admire and represent them. I do have to wonder about the effectiveness of the tax. Will wine, hard liquors, marijuana or other illegal drugs be good substitutes for beer? If so, part of the revenues for drug treatment may be spent on workers who acquired drug habits avoiding the beer tax.
About the broader economic impact, the author writes,If it passes, Oregon will overnight become the most taxing state for suds, one-third higher than the next highest beer tax state, Alaska. The state may do this even though Oregon is the second largest microbrewery producer in the U.S. The beer industry and its 96 breweries contribute 5,000 jobs and $2.25 billion to state GDP. Kurt Widmer of Widmer Brewing Co. says the tax would "devastate our company and small breweries throughout the state." Adds Joe Henchman, director of state projects at the Tax Foundation, "This microbrewery industry has gravitated to Oregon in part due to low beer taxes.
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I must agree with the statement about beer lovers turning to drugs, with one stipulation. The possibility also exists that they could turn to imported alcohol to get their fix. Even worse, as the equilibrium price of legal beer skyrockets, desperate customers will turn to the illegal market to fill their needs, massively shifting the demand curve for illegal liquor to the right and prompting a hefty price increase. The large amounts of money to be made will prompt suppliers to begin pumping white lightning into the thirsty masses and create the same sort of situation which produced the gangsters back during Prohibition. The ban will this time be economic rather than judicial, but the problems which result will follow in the same vein.
ReplyDeleteMatthew Gill
This is just another thing to make people pay more money because of the "bad" economy. Just like it is said, this will only cause people to turn to other drugs for recreation. Which then they really will need the tax increase to pay for all drug addicts they will be responsible for creating in the first place! I think the negative effects will be worse than any positive. After all as far as i have heard drug dealers havent started adding a tax to their "products".
ReplyDeleteMy understanding of a regressive tax is a tax that has a higher rate on cheap products and a lower rate on expensive products, thus hurting the poor more than the rich. Maybe beer will become a medium of exchange in some communities and people will begin to trade cheap beer for other products. Lets hope that happens instead of illegal activity!
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