Wine Industry Finds Taxes Sweet, but Foes Say the Grape Is Sour

It is not something legislators are accustomed to hearing: an industry group asking permission to pay more taxes.

But California’s wine makers, hoping to outmaneuver their critics, have sponsored legislation calling for a 900% tax increase on wine--from 1 cent a gallon to 10 cents a gallon.

What the industry really fears is the likelihood of a much larger tax increase pushed by its adversaries through a ballot measure, such as the initiative that health groups successfully sponsored last year in raising the tobacco tax.

The Senate Revenue and Taxation Committee took the first step Wednesday toward granting the wine industry’s wish, voting 6 to 2 to approve the measure.

If the bill is successful, it would be the first change in the state wine tax since 1937--when it was reduced from 2 cents to a penny per gallon.

“Over the years, we have looked kindly on the California wine industry,” said Sen. Alfred E. Alquist (D-San Jose), who is carrying the measure. “I think this is a constructive step.”

But even with a 9-cent increase, California would continue to have the lowest wine tax rate in the nation.

And the legislation, sponsored by the California-based Wine Institute, faces an unusual array of opponents.

Gov. George Deukmejian has indicated he will veto the bill if it passes the Legislature because he is opposed to tax increases without a vote of the public.

At the same time, consumer advocates and anti-alcoholism groups are fighting the bill because they hope to sponsor a ballot measure next year that would increase the tax rate to as much as 66 cents a gallon, the national average.

“I find myself in the unusual position of opposing an alcohol tax bill,” Deborah Kleinman, a lobbyist for the National Assn. for Public Health Policy, told the Senate committee. “This is not a comfortable position for us to be in . . . but we feel this is an inadequate bill.”

John De Luca, president of the Wine Institute, said the proposal has the overwhelming support of the state’s wine industry.

Wine makers, he said, have grown weary of continually fighting off the assaults of consumer and alcohol groups that have sought for years to increase the wine tax.

“Rather than having someone else always frame the issue, let’s come forward with an honest appraisal,” De Luca explained. “If you want credibility, you have to do credible things.”

The wine industry is particularly concerned with the consumer groups’ talk of an initiative that would increase the tax rate to far more than 10 cents a gallon.

And the wine makers seem to have learned from the experience of the tobacco industry last year in its unsuccessful effort to defeat Proposition 99, a measure that increased the cigarette tax by 25 cents a pack.

The tobacco companies spent $21.2 million fighting the measure, but lost at the polls.

The wine industry, by coming forward with its own proposal of a 900% tax increase, would substantially improve its argument for defeating a larger increase.

“No one can truly believe that this proposal is aimed at producing real tax equity,” said Jim Shultz, a lobbyist for Consumers Union and an advocate of an initiative to raise taxes on alcohol. “The bill is a public relations effort aimed at heading off proposed increases that would bring California’s tax more in line with other states.”

Critics contend the bill is flawed because it does not touch the tax on beer and distilled spirits. Although the public consumes more than five times as much beer as wine, the tax on beer would remain at 4 cents a gallon, said Harvey Chinn, a lobbyist for the California Council on Alcohol Problems.

Furthermore, revenue from the increase would go into the general fund and would not be set aside specifically for alcohol-related programs.

“We feel the amount of money produced for the state here, an estimate of $11 million, is really infinitesimal compared to the societal costs that alcohol causes,” Chinn told the committee. “I know the alcoholism community would support it if were not so meager an amount of money.”