Alcohol

How Highly Taxed is Your Beer?

And how much smuggling do those taxes cause?

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Politicians have always had a complicated relationship with alcoholic beverages. On the one hand, they really like skimming money from the stuff (at one point as much as 40 percent of federal revenues came from taxes on booze); on the other hand, they really hate that people take pleasure in drinking instead of…say…reading up on the great deeds of people who hold public office. Their go-to solution on both counts is to impose high taxes on beer, wine, and liquor so as to discourage their consumption and fund government services from their consumption.

No, that doesn't make sense. You've met these people before, right?

Anyway, the Tax Foundation compiled a handy map of beer taxes in these here United States. The map lists taxes per gallon of suds and ranks the states from highest (Tennessee at $1.29 per gallon) to lowest ($0.02 per gallon in Wyoming).

What the Tax Foundation map doesn't go into is the fact (shocking, I know) that with alcohol as with cigarettes and just about every other portable thing you can imagine, high taxes encourage smuggling from places where taxes are lower to places where they're higher.

In 2007, the Michigan Liquor Control Commission reported (PDF) that alcohol smuggling contributed to a "conservative annual estimate of $14 million dollars in loss to the state" in revenues. Indiana and Wisconsin (PDF) were fingered as the major sources. Despite the bulky nature of the stuff relative to liquor, that included "millions of out-of-state cans and bottles" of beer from just one smuggling ring.

After surveying the long and world-wide history of alcohol smuggling, the report recommended x-ray scanning trucks that enter Michigan, but didn't touch on lowering taxes (currently $0.20 per gallon in the wolverine state) to match the rates of its neighbors ($0.12 per gallon in Indiana and $0.06 per gallon in Wisconsin). I'm just guessing here, but I'll bet that smuggling continues no matter how many x-ray machines the state has since purchased.

Update: Britain's Institute of Economic Affairs reported in 2012 that high alcohol taxes don't discourage drinking. "[T]his research shows that the amount of drink consumed in high tax countries is exactly the same as in low tax countries." Taxes just fuel black markets, including smuggling and illegal production.

Below, Reason TV celebrates moonshine, the beverage that owes its very existence to the desire to evade tax collectors.