Center for Science in the Public Interest Alcohol Policies Project
Alcohol Excise Taxes in California
California's Budget Deficit and Alcohol Excise Taxes
California faces a deficit that will exceed $30 billion in fiscal year 2004. The state Constitution requires that California's budget be balanced. To do so, the state government can cut vital services, increase taxes, or use a combination of both. Raising alcohol excise taxes is a viable option to raise revenue.
California's excise taxes on wine are among the lowest in the United States ($0.20 per gallon for wine). Only New York ($0.19 per gallon) and Louisiana ($0.11 per gallon) have lower wine tax rates. 1 The state's excise taxes on beer and liquor ($0.20 per gallon for beer, and $3.30 per gallon for spirits) fall below the current national averages for those products.*
The Effects of Inflation on Tax Rates and Revenues
Alcohol excise tax rates, because they are set at a fixed value per volume of beverage, have steadily been eroded by inflation. As a result, "real" tax rates have declined over most of the postwar period and this erosion of real tax rates has contributed to overall declines in
real beverage prices over time. 2
Inflation has greatly diminished the value of California alcohol excise tax rates even since the last, minimal increases in 1991.** The 1991 beer tax rate of $0.20 per gallon is now worth about $0.15 per gallon; the $0.20 per gallon tax for wine is now worth $0.15 per gallon; and the tax rate of $3.30 per gallon on liquor is now worth only $2.50 per gallon.
Indexing for inflation since the last tax rate increase, the current tax on beer ($0.20 per gallon) would be $0.26 per gallon today; the current tax on wine ($0.20 per gallon), $0.26 per gallon; and the current tax on distilled spirits ($3.30 per gallon), $4.36 per gallon today.
In 2001, the State of California collected $288 million in alcohol excise taxes. Because of inflation since 1991, that amount was worth only about $218 million. Conversely, had the excise taxes been indexed for inflation since 1991, the state would have collected as much as $380 million in 2001 revenue from alcoholic beverages, an increase of 25 percent (see Table).
* Beer, $0.25 per gallon; wine, $0.77; liquor, $3.84.
** Prior to 1991, the tax rates had languished for more than 30 years.