Bush Plan Calls for Big Hike in Alcohol Taxes

The Bush Administration has proposed sharp increases in federal excise taxes on alcohol--including a boost of 73 cents in the levy for each bottle of table wine--as part of its opening proposal in negotiations with congressional leaders on a deficit-reduction package.

The Administration’s plan, endorsed by Republican congressional negotiators at the budget summit as a preliminary bargaining position, would tax the alcohol content of beer, wine and liquor equally at 25 cents an ounce.

President Bush, however, has said that he is not “locked in” to any proposal, and Democratic negotiators have yet to receive the proposal, much less sign off on it.

The tax would go up from 16 cents to 81 cents on a six-pack of beer, from 3 cents to 76 cents on a bottle of wine and from $1.98 to $2.54 on a 750-milliliter bottle of 80-proof liquor.

Revenue gains from the alcohol taxes would amount to an estimated $7.2 billion in the year starting Oct. 1, or more than one-third of the $20.2-billion increase in net tax revenues from the Bush package.

The plan came under sharp attack Saturday from the National Wine Coalition, which said the higher wine taxes would have a “devastating” impact, lowering sales by 20% and eliminating 96,000 jobs nationwide.

“The substantial price rise and decline in sales that will result if the Bush Administration’s excise tax plan is carried out will imperil the vast majority of those in the wine industry who run small family businesses,” said John Volpe, executive director of the coalition.

In a related report, the Congressional Budget Office said that the higher excise taxes on alcohol would cost the average family $101 more a year, with the biggest burden falling on poor people who spend a larger proportion of their income on liquor, wine and beer.

A budget office study said the one-fifth of the population with the lowest incomes spend $308 a year on alcohol, or 3.7% of their income, compared to $1,210, or 1.6%, spent by those in the top 20%.

Another tax aspect of the Administration’s deficit-cutting package, the proposal for a $10,000 limit on the federal deduction of state and local taxes, also came under attack Saturday.

On the eve of its annual meeting in Mobile, Ala., the National Governors’ Assn. released a letter sent to Bush on Thursday in which association chairman Terry E. Branstad, a Republican from Iowa, and vice chairman Booth Gardner, a Democrat from Washington state, warned that the governors oppose “any restrictions on the deductibility of state and local taxes as unacceptable encroachment on state systems of taxation.”

The letter also asserted that “state governments have been severely impacted by reductions in discretionary grants over the last decade and that the current fiscal situation of many states is precarious.”

A proposal in the Administration package that would freeze cost-of-living adjustments on pensions of nearly 4 million military and federal retirees also is controversial.

Several California members of the House objected to the suggested increase in wine, beer and liquor taxes, saying it would unfairly place too much of the burden of reducing the federal deficit on those least able to afford it.

“I am personally opposed to these (excise) taxes,” said Rep. Jerry Lewis of Redlands, the third-ranking Republican leader in the House. “Many of us (Republicans) are expressing very strong concern about sales taxes that are very regressive and have the biggest impact on the middle-class working family.”

Rep. Vic Fazio (D-Sacramento) said that the proposed increase would upset the traditional differential in alcohol taxation whereby higher levies were imposed on hard liquor compared to wine.

As a major wine-producing state, Fazio added, California may get a “double whammy” because of possible increases in state wine taxes through legislation or initiatives on the November ballot.

“We have to make it very clear that an excise tax on wine is not going to be the only answer,” said Rep. Nancy Pelosi (D-San Francisco). “There has to be some sharing of the burden.”

In its analysis, the National Wine Coalition said an increase in the wine tax to 76 cents a bottle would result in a loss of 94,000 jobs, a total of $1.5 billion in wages and a drop of $362 million in state and local tax revenues because of lost sales.

“For every dollar the federal government will generate from this increase in the federal excise tax, state and local governments will lose about 32 cents,” according to the analysis.

“Major wine-producing states, such as California, New York, Texas, Florida, Washington, Pennsylvania, Ohio, Illinois and Michigan, will be especially hard hit,” the coalition’s statement added. “Sales of wine can be expected to fall by over 20%.”

The coalition is composed of winemakers, industry allies and wine consumers.