Putting the Squeeze on the Grape

California industry groups have spent millions over the years lobbying the state Legislature to kill bills that would affect them--particularly bills that would raise their taxes. Imagine then the surprise of many in Sacramento when the California Wine Institute recently proposed an increase in the excise tax on wine in California.

At the industry group’s request, Sen. Alfred Alquist (D-San Jose) and Assemblyman Dominic Cortese (D-San Jose) have sponsored bills providing for the higher wine tax. The first hearings on the legislation will be Wednesday.

Wine Institute President John De Luca described the move as an act of credibility. He said the industry has a responsibility to California as the base of American wine production. But the action is not altogether altruistic. De Luca noted that industry critics have proposed far steeper increases in the tax on wine and have threatened to mount an initiative petition campaign to achieve their goal. Such an initiative campaign last year resulted in a 25-cent-per-pack increase in the state cigarette tax.

The California alcoholic beverage excise taxes provide a tempting target. The tax on table wine--both foreign and domestic--is only 1 cent per gallon, unchanged since 1937 (when it was reduced from 2 cents) and a pittance compared with the 50-state average of 66 cents. The California tax is 2 cents on sweet wines and 30 cents on sparkling wines. The beer tax is only 4 cents a gallon and the liquor tax $2 a gallon.

The Wine Institute is proposing to increase the present tax from 1 cent per gallon to 10 cents for table wines and from 2 cents a gallon to 20 cents for sweet wines. The sparkling wine tax would remain unchanged at 30 cents.

At a penny a gallon, the present wine tax is laughably low, even considering the clout the wine industry has in the Legislature and the normal protection granted a home industry. At a dime a gallon, the tax still would be far below the national average, but the Wine Institute argues that the California industry pays more than $200 million in other revenues, including $105 million in sales taxes, and is an important contributor to the California economy.

Skeptics will scoff at the size of the proposed tax hike. And Gov. George Deukmejian probably would veto the bill since he opposes any tax increase, his office has said. Cynics might say that, knowing a veto was a liklihood, the Wine Institute had nothing to lose in proposing an increase. But the industry at least should get credit for daring to be unconventional and for its willingness to risk amendments that would attempt to sock the industry with a far higher tax. In the end, if the institute is able to preempt an initiative drive, this will be viewed as a shrewd business maneuver.

For now, the Legislature should treat the institute’s effort as a serious one and adopt a reasonable increase in alcoholic beverage taxes. And wine industry officials should attempt to persuade the governor that failure to raise the levy now is an open invitation to a dramatic escalation of wine taxes via initiative petition. Recent history in California demonstrates that the initiative is not the way to set tax policy.