Make Drinkers Pay the Social Costs of Imbibing

Most Americans are familiar with that staple of 1988 campaign rhetoric: “Read my lips--no new taxes.” But how many, including the President, are aware that there are other reasons to raise a tax besides raising new government revenues?

One good reason to tax a commodity, for example, is if its use imposes costs on others. If the tax isn’t at least equal to those costs, it ought to be raised accordingly. That, in essence, is why we believe federal taxes on alcoholic beverages ought to be boosted--not in order to reduce the budget deficit, although that would be a side effect, but to ensure that heavy drinkers bear more of the social burden they create.

In a recent study for the RAND Corp., we found that alcohol taxes cover slightly less than half the costs drinkers inflict on society. In effect, the public subsidizes every other swallow.

Ideally the alcohol tax should focus only on abusers. (Along with most studies, we define abuse or heavy drinking as consumption in excess of five drinks per day.) But since it is impractical to identify and tax only those individuals, we averaged the costs over all alcohol consumption.

The largest single cost alcohol abusers foist on their fellow citizens is also the most obvious--the price paid by innocent victims of drunk-driving accidents. Drunk driving, plus alcohol-related expenses of the criminal justice system, imposes costs of 19 cents per drink.

Other effects are more subtle. Heavy drinkers have higher health-care costs, most of which are financed through group insurance premiums or taxes. The excess medical costs amount to 2 cents per drink. Additional sick leave taken by drinkers contributes another cent per drink. Because heavy drinkers tend to die earlier, they do not collect as much in Social Security benefits. But this is more than offset by their greater rate of collection on group life insurance and on disability insurance policies. The net effect of Social Security, private pensions, group life insurance and disability insurance is to add another penny per drink.

Many social-welfare programs are financed through payroll taxes; because heavy drinkers do not work as many years, they do not pay in as much in payroll taxes, another penny per drink. (These cost estimates have been adjusted for numerous differences between heavy drinkers and others, including their age, sex, race, education, family income and other health habits, including how much they smoked and exercised.)

All this adds up to 24 cents per drink in costs that heavy drinkers impose on others. This compares with a tax that at present is around 11 cents per drink. The 11 cent figure considers average state and federal excise and sales taxes and also averages taxes on beer and wine together with the higher taxes on distilled spirits.

By contrast, despite the enormous toll of smoking on personal health, we computed that smokers do pay their social way. Total taxes per pack of cigarettes average about 37 cents nationally and are even higher in California, while the costs to others are 15 cents per pack to those outside the smoker’s family, or 38 cents per pack if we include costs imposed on other family members by the smoker.

The biggest cost of smoking falls directly on the smoker: more than two hours less to live for each pack smoked. But callous as it may seem, this loss of life is not a financial cost to society. Smokers’ payments for the pensions they don’t live to collect offset a large fraction of their higher medical and disability costs.

With alcohol’s costs more than double current average taxes, a tax increase is clearly in order. But why should moderate drinkers pay 24 cents per drink to cover the costs of those who overdo it? Two reasons: First, to the degree that additional taxes deter alcohol abuse--and there is evidence that states with higher tax rates have lower vehicle fatality rates and lower rates of death from cirrhosis of the liver--all, including moderate drinkers, will benefit. Second, to the extent that alcohol taxes are an alternative to other types of taxes, moderate drinkers will come out ahead. After all, the 10% who are heavy drinkers consume two-thirds of the alcohol; they will pay the bulk of any tax increase on alcohol.

The federal budget deficit aside, there is good reason to raise excise taxes at federal, not state, level. If one state raises taxes, there are not only incentives to bootleg alcohol across state lines but also incentives to drive to a nearby state to drink, thereby increasing the probability of an auto accident on return.

Some have argued that raising alcohol taxes will hit hardest at the poor. Poor people who are heavy drinkers will be worse off, but poor people drink less on average than others. More important, excise taxes on alcohol account for less than 1% of federal revenues, whereas individual income taxes account for 40%; minor adjustments in the income tax can readily compensate for any increase in alcohol taxes.

Between 1951 and 1985, the Consumer Price Index quadrupled, while federal taxes on distilled spirits were raised only 19%; taxes on beer and wine were raised not at all. Yet it is beer and wine taxes that most need raising. The tax on wine is a little more than a penny per glass (less than a penny in California, which has by far the lowest taxes on wine in the country). The tax on beer is less than a nickel per glass --and beer is the drink of choice for teen-age drunk drivers. An increase in taxes will lead people to reduce their consumption of alcohol--and reduce the magnitude of its social costs.

It doesn’t make any sense, Mr. President. Read our lips: No more such subsidies.