Why the alcohol tax is a good thing for drinkers

Our view: The monolithic liquor lobby has been cracked

May 18, 2011

On Thursday, Gov. Martin O'Malley plans to sign into law a 3 percent sales tax on alcohol, Maryland's first increase in alcohol-specific taxes since 1972 (and the first on hard liquor since the Eisenhower administration). The alcohol industry has warned the state's drinkers of this impending increase with something of a doomsday air; liquor wholesalers and retailers spent the 90-day legislative session telling consumers that the "dime a drink" proposal being considered would really amount to much more, and the last-minute switch from an excise tax to a sales tax has done little to change their tune. One liquor store on the Baltimore City/County line used its marquee in recent weeks to advise customers to stock up before the new tax takes effect.

Indeed, the best research available suggests that the tax increase will reduce alcohol consumption in Maryland, particularly among underage drinkers, who are particularly price sensitive. Public health researchers say that will have a host of benefits, from reduced drunken-driving fatalities to lower rates of domestic violence.

But looking at things from a consumer's perspective, the tax increase, paradoxically, may be the best thing to happen in years. It will mean that alcohol is slightly more expensive, but it also signifies the most significant crack yet in the all-powerful Annapolis liquor lobby. Taken in conjunction with the passage of a bill to allow direct shipment of wine to consumers, this year could mark a turning point that leads to greater consumer choice, more competition and, perhaps, even lower prices.

The liquor industry has, historically, been among the most influential special interest groups in Annapolis. It spends millions on lobbying fees and campaign contributions to maintain a set of regulations that date back to the end of prohibition. Liquor industry representatives spend a great deal of effort to give the impression that a strict, three-tiered regulatory system (the three tiers being manufacturers, distributors and retailers) is all but divinely ordained. If it seems suspicious that an industry would be lobbying for more government regulation, not less, that's because it is. The system is designed to favor established players in the industry at the expense of competition and of consumer freedom.

There is actually a law on the books stating that it is the declared policy of the state of Maryland to eliminate price competition in the alcohol industry. The comptroller is empowered to limit the amount of discounts that can be offered by manufacturers and distributors, and if any manufacturer decides it wants to lower prices, it must wait until the comptroller has given its competitors the chance to match it. These rules are couched in terms of the need to promote temperance, but the effect is to guarantee a level of profits for the industry.

Other laws limit the days and hours alcohol may be sold; prohibit most grocery or other chain stores from selling alcohol; ban diners from bringing bottles of wine to restaurants that have liquor licenses; and, even after the new law allowing direct shipment of wine, prevent consumers from ordering from retailers in other states, thus precluding membership in wine-of-the-month clubs or, generally, ordering foreign wines.

Change to the system has usually come incrementally, with small concessions from the industry over the years on issues such as retail sales by local wineries. But this year, the industry waged an all-out war against a tax increase, and it lost. It wasn't even able to get the legislature to stick with the Senate's initial plan of phasing in the new sales tax over three years.

In fact, there are signs beyond Maryland that the liquor lobby isn't as monolithic as it once was. Producers and distributors are engaged in a fight over legislation in Congress that would cement the authority of states, rather than the federal government, to regulate the distribution of alcohol. A 2005 Supreme Court decision struck down some direct shipping regulations, leading to a rash of lawsuits challenging state regulations across the country. The distributors see this development as a threat to their state-sanctioned existence, so much so that the National Beer Wholesalers Association actually issued a news release last week trumpeting Maryland's direct shipment law as proof that the current regulatory scheme works. It is now to the distributors' advantage to loosen their grip, lest they be wiped out altogether, and that presents an opportunity for a newly empowered coalition of Maryland consumers who are pushing for laws tilted in their favor.

Adding 3 percent to the cost of beer, wine and alcohol for the benefit of schools, health care and services for the developmentally disabled will certainly put a pinch on consumers. But along with it comes proof that the forces that previously drowned out their voices are not invincible, and in the long run, that may matter more than a few pennies a drink.

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