Selling the Proposed Beer Tax Increase

Beer, wine, and spirits are subject to different rates of taxation in every state.  Oregon's beer tax is tied for fourth lowest in the nation, our wine tax is middle-of-the-pack, and our spirits tax is second highest in the nation (to neighboring Washington).  Little wonder a number of Southern Oregonians drop down to Northern California when shopping a few bottles.  This link has the 2005 data, not yet updated with changes made this year. 

Oregon's beer tax has not increased since 1976, despite efforts to change that during the last ten legislative sessions.  For several years now, Senator Bill Morrisette (D-Springfield) and Representative Jackie Dingfelder (D-Portland) have been leading the push for a higher beer tax.  Each iteration has been different as they look for the right name and set of programs to be funded with the various proposed increases.

- In '01, their proposal was to more than double both the beer and wine taxes plus increase the cider tax by a dime per barrel to pay for after-school and school vacation programs.

- In '03, the lean budgetary times led them to propose an almost nine-fold increase in the beer tax plus once again to more than double the wine tax to pay for prescription drug coverage for low-income seniors and the disabled, emergency programs not in the governor's budget, etc.

- In '05, the word "tax" was considered such a negative that Morrisette publicly called the proposed beer tax an "alcohol recovery fee" (previous blog here).  The legislation instead referred to "malt beverage cost recovery fees."  Gone was the wine tax increase, but the beer tax was to be increased more than twelve-fold to pay for alcohol and drug prevention and treatment.  The state's smaller breweries would only have been subject to a six-fold tax increase.

- The '07 version, still a "malt beverage cost recovery fee," would drive a nearly 14-fold increase in the beer tax to pay for the prevention and treatment of substance abuse.  This time, the state's smaller breweries would be completely exempted from the tax increase.

In the last couple of months, two key events have given Morrisette and Dingfelder increased hope that they might finally be able to sell their tax increase.  It recently came to light that several Republicans and a couple of Democrats accepted free trips to Hawaii from the Oregon Beer & Wine Distributors Association (a lobbying group) but didn't disclose the trip as required (previous blog here).  That has damaged the Association's clout, as did the recent elections which will end the Republican majority in Oregon's House...and thus the Republicans' ability to stifle debate on the subject.  To the article:

"With a Democratic House, Senate and governor, I think we can pass the bill," says state Sen. Bill Morrisette, D-Springfield, who already is working on a draft bill to increase the Oregon beer tax to a total of about 10 1/2 cents per 12-ounce glass, from its current rate of about three-quarters of a penny. The proposed new rate would be the nation's highest.

Oregon's proposed beer tax would be more than quadruple that of each our neighboring states.

Morrisette and other proponents of the increase maintain that rising costs associated with substance abuse in Oregon have left the taxes that might pay for prevention and treatment programs far behind.

As many as 75 percent of the inmates at Oregon's prisons committed crimes related to alcohol or drug abuse, he says. Mental health programs, hospital emergency rooms and family relationships have been hit hard as support for counseling programs has dwindled in the past couple of decades.

"I think it's just terrible we're not putting more money into the prevention and treatment end of it," Morrisette says. "There's such a disparity between (money spent on prisons) at the end of the whole process rather than (prevention) at the beginning."

Sadly, Salem only devotes a small fraction of the revenue gained from the various alcohol taxes to addressing the problems caused by alcohol...same thought with tobacco and gambling.  Unstated is the fact that when Salem passes a tax for specific purposes, it tends to stop paying for such programs from its general fund.  Thus, part of next year's version of the beer tax increase likely wouldn't actually go towards increasing the prevention and treatment of substance abuse, but would instead be spent on whatever else the legislators choose. 

Little wonder Morrisette and Dingfelder have consistently pushed for the tax but varied the programs they've used to market it to a tax-shy populace.  It seems like we either get dishonest debate or no debate at all on raising the beer tax.

Pam Erickson, deputy director of Oregon Partnership, says the current tax of $2.60 per 31-gallon barrel of beer is out of proportion to alcohol's toll on public dollars.

Erickson--former director of the Oregon Liquor Control Commission--says her agency and others that promote early-stage prevention and treatment for alcohol and drug abuse would benefit greatly from the legislation being discussed for 2007.

While the current beer tax is expected to raise $14.6 million in the biennium after next year's legislative session, the proposed "Malt Beverage Cost Recovery Fee" would raise an additional $109.8 million in the two-year period.

Erickson says the sale of hard liquor in state-controlled stores generates a reasonable amount of money for the state through markups, and Oregon's wine tax falls in the middle range among other states.

"But the (existing) beer tax is so low it's almost not worth collecting," she says. "It just is totally out of proportion to the cost to the public of alcohol. And the primary alcohol that Oregonians drink is beer. The beer industry just isn't paying its fair share of the cost to the public."

The second-highest spirits tax in the nation is "reasonable" versus high?  $14.6 million almost isn't worth collecting?  So much for her credibility...

Higher prices do help lower alcohol consumption to a degree.  The beer tax as currently proposed would add about $0.62 to the cost of a six-pack (before considering the bureaucratic expense).  This is why beer and wine lobbyists have consistently fought proposed tax increases that would impact their products...and why a range of beverage manufacturers and distributors are fighting proposals to increase our nickel deposit and the list of containers to which it applies. 

Cost matters, which is why Morrisette and Dingfelder have finally decided to completely exempt most of Oregon's brewers from their proposed beer tax increase.  That should help reduce some of the opposition to the bill, and maybe even generate a few proponents (because of the protectionism).  Undoubtedly, the nation's largest brewers will continue to invest directly and via lobbyists to defeat any beer tax increase.

The current proposal exempts breweries that produce fewer than 200,000 barrels per year from the new tax. That would ease the pinch for most of the state's homegrown brewers. But its largest, Widmer Brothers Brewing in Portland, is above the exemption limit and Deschutes Brewery in Bend is close.

"We're under it for the moment, but we're rapidly approaching it," Deschutes President Gary Fish says. "If (a tax increase) comes up again, we will be opposed to it because we have to be--we don't have a choice.

...

Fish says his brewery is operating on a thin margin, and already has had to absorb cost increases - from health insurance to glass to utilities - of 6.6 percent in the past five years. During the same period, Deschutes has been able to justify product price increases of just 1.4 percent, he says.

Fish says that a 10-cent-per-glass tax increase that was proposed in the 2005 Legislature would have amounted to about $2 million per year in new taxes for his company.

"The idea that money exists, or that we could just pass that along to consumers is patently false, and it would have a devastating impact on our company," Fish says.

There will always be winners and losers--many of them unintended--when folks change our taxes.  It makes sense that those who profit from alcohol be involved in helping those who are adversely impacted by it.  Unfortunately, the state is addicted to paying for other programs with the money derived from the various alcohol taxes, leaving it little to help those hurt by alcohol.  So the solution is to increase the state's dependency upon alcohol? 

Comments

[Thomas Ware]

Here's an idea I'm pitching to an eighteen year aquaintence referenced above: Oregon microbrews are predominantly Ales, bigbrand brews are Lagers. Oregon microbrews have a smaller market share, bigbrand brews are multi-national and enjoy a greater market share. Tax the Lagers. As g'ma always taught us to look for the silver lining: Oregonians are pretty smart, they'll buy local microbrewed Ales over muti-nationl bigbrand Lagers if they Ales aren't taxed.

But it's not about Oregon microbrewers, it's about taxing the multi-nationals who are brewing in Oregon for consumption across the Pacific Northwest who can afford to absorb the tax and pass it on to their consumers at a lower rate than the local microbrewers can absorb and pass on. We're talking $0.20 increase on an Imperial Pint.

One other point, as a no Party Affiliation I recently put a lot into supporting and advancing the democratic party effort, and I'm kinda' seein' this as a big FU. Don't appreciate that, at all.

[RoguePundit]

Taxing the lagers is certainly another way of targeting the huge manufacturers. The question would be whether our legislators could craft a tight enough definition of the beers to ensure it wouldn't become an achilles heel for lawsuits.

Of course, there's also some potential complexity in defining production by numbers. If a major brewer owns a stake in an Oregon microbrewer, whose production numbers apply? Though Widmer is already above the proposed limit, Anheuser-Busch owns 39.5 percent of it. Also, I'd hate to see there be such a harsh penalty on our local brewers that gain success but have to fear crossing 200,000 barrels per year (like Deschutes).

[lieben]

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