What Could Be Wrong With Alcohol Taxes? : Tempting but best to vote no on Propositions 126 and 134

Alcoholic beverages, especially wines, are under-taxed in California, depriving the state of a useful revenue source. Two competing measures on the Nov. 6 ballot, Propositions 126 and 134, give voters an opportunity to remedy this situation. But both are flawed and merit a no vote.

On the surface at least, an alcohol tax, as a levy on a nonessential, is an attractive revenue measure. In an almost Puritan way it reflects society’s unwillingness to permit such consumption to occur, as it were, unpunished. Alas, such taxes are not without consequences. They are inevitably regressive--hitting low- and middle-income people hardest. And here they would raise the cost to consumers of a product that supports the state’s important wine industry--precisely at the moment that the state economy, if not heading for a full-scale recession, is sputtering. And at the same time that Congress has under serious consideration major hikes in federal alcohol taxes.

No on 134: Despite its higher numerical designation, Proposition 134 qualified for the ballot first. The so-called “Nickel-a-Drink” initiative would raise current taxes on alcoholic beverages from 1 cent to $1.29 a gallon for wine; from 4 cents to 57 cents a gallon for beer; from $2 to $8.40 a gallon for spirits.

The money raised would be spent on many important needs, including alcohol- and drug-abuse prevention and treatment programs, emergency medical care, law-enforcement costs arising from drug and alcohol abuse and community mental health programs. Fine, but a major problem is the fact that it earmarks all the money it raises for only those programs, locking the state into spending millions of dollars on them into the foreseeable future whether our needs change or not. That is just not good budgeting. Too much of the state budget is earmarked as it is--40% must go to schools, for example, as a result of Proposition 98’s enactment two years ago. Proposition 134 would only make things worse.

No on 126: The Legislature voted to put another alcohol proposition on the ballot. Proposition 126 was created at the behest of the industry that drafted the proposed constitutional amendment as a countermeasure to Proposition 134. It raises liquor taxes, too, but by considerably lower rates: 20 cents per gallon on wine or beer and only $3.30 a gallon on spirits. None of the new tax revenue is earmarked, going instead to the state’s general fund.

But while Proposition 126 seems like a reasonable alternative to Proposition 134, it’s still troubling--and not just because it’s an industry measure. If the Legislature had been doing its job, it would have raised alcohol taxes on its own a long time ago as a routine revenue measure.

Instead, it offers a ballot measure to do that, a measure that also contains a couple of provisions the liquor industry wrote that could be troublesome in the future. It is written to supersede all alcohol taxes imposed by cities, counties or districts, and amends the state Constitution to prevent local jurisdictions from ever assessing such levies. There is no reason for the change, except to avoid future taxation. Given how long it’s been since alcohol taxes were raised, there is no need for that provision. It smacks of opportunism on the liquor industry’s part.

Proposition 126 also attempts to create an exception to the relatively sensible provision in the state Constitution that holds that if two similar ballot measures pass, the one that gets the most votes becomes law. As a result, if both Propositions 134 and 126 pass, the matter could wind up in court in a long and potentially costly series of lawsuits.

These two alcohol propositions are clever in their own ways. Proposition 134 offers a sin tax on behalf of funding good causes; 126 aims at torpedoing 134 while still raising alcohol taxes. Tempting as they are, both need to be resisted on Nov. 6.