Wine Talk

Snooth User: Richard Foxall

How to curtail overconsumption

Posted by Richard Foxall, Feb 8, 2013.

Somewhere in these posts I swear I said something about having an inverse tax on alcohol.  I'm sure it was not the point of the original post, or I would spend a little time looking for it.  So, recapping my thoughts, I have thought for the last couple years that there should be an inverse tax on alcohol so that the cost per unit of ethanol (Eric Guido put up some stats, but essentially we are talking one 12 oz beer, one 5 oz glass of wine, one shot of 80 proof spirit or equivalent mixed drink) has a floor.  If you make more powerful malt beverage, your tax per ounce goes up, lighter wine, similarly.  The idea is that it cuts into the beverages that are sold solely for the purpose of getting wasted, and makes better drinking comparatively more reasonable.  Of course, if I'm the maker of Tenants Extra Strength Lager or St. Ides or Cisco, I can just raise the price to the floor price and be more profitable per unit, but you can bet my units will go down. 

My thinking was that, except for Bill Koch (see "The Billionaire's Vinegar"), who can afford to become a daily lush on first growth or even $30 Napa Cab?  So leave the price of those essentially untouched, just raise the price of the drink to get drunk beverages.

England has tried something like this, with quite a few protests that this is a regressive tax on the poor. (Gee, maybe some of them are poor because their alcohol consumption is taking over their lives.) Of course, the liver damage, missed work and general health issues from over consuming greatly outweigh the added cost, but what other entertainment can you expect the poor to engage in? (Which to me sounds more paternalistic than trying to get them to drink a little less, but whatever.)

I love it when I'm right: Turns out there are strong benefits to a minimum price level for alcohol. Exactly the idea of a floor was tried in British Columbia and it worked.  A really good alternative to neo-prohibition that would essentially leave the price of even a basic Cotes du Rhone untouched. And you could still get those off-vintage first growths without paying additional tax--it would only create a floor.  Interesting idea.

Replies

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Reply by duncan 906, Feb 8, 2013.

David Cameron is known to favour the idea of a tax per unit of alchol but his critics say that this would penalise those with lower income.The other point is that every shopkeeper in Calais would be rubbing their hands with glee along with those who have shares in the ferry companies because EU rules state that anybody can fetch back as much as they want as long as it is for their own use and not resale.The real answer to alchol abuse is education and changing the culture.In spite of comparitively low prices France does not have half the problems that the UK does.In France one rarely sees bad behavoir 'caused' by alchol

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Reply by Richard Foxall, Feb 8, 2013.

I saw plenty of bad behavior caused by overconsumption of alcohol when I was in France in the 80s.  It was all engaged in by Brits, mind you.

I don't think this would actually help the "shopkeeper in Calais" all that much if it was just a floor, as they did in British Columbia.  It's still not going to pay to get on the ferry to get a 2 L bottle of Tennents Extra Strength or some other rotgut, and the price of even a reasonable French wine won't increase, since it's already above the minimum.  I'm not at all advocating a tax per unit, but advocating a minimum price per unit.  Retailers and manufacturers can either raise the price and pocket the difference or pay it as tax.  I know which they would do.  My point in fact was a reverse tax--I'd like the makers of rotgut to subsidize my Brunello habit!  (Although I'm probably one of the cheapest consumers on here--that's what comes of favoring the Loire for reds, Italy for whites, and Spain for aging.)

I wish education were more helpful, but my faith in the perfectibility of humans is all but gone. 

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Reply by gregt, Feb 8, 2013.

I don't know Fox - if you tax something too much, people find alternatives and then you lose out on the taxes. Cigarettes for example, are highly taxed in NY. In principle I have nothing against that because I can't imagine why anyone would smoke in the first place. But what happens is that you get bootleggers and the Russian mafia involved in shipping from low-tax states to high tax states and rather than collect more taxes, the government ends up spending more money to battle corruption and criminal enterprises.

There's some point at which the tax is painful enough to make people think about whether they need the item but not so high that they seek alternative distribution channels.

As far as being regressive - any tax on consumption of goods is regressive simply because people with lower incomes spend a higher percentage of their income than people with larger incomes. That's not always a bad thing and as you point out, maybe there's some ancillary good to come of it. For those reasons, I think there should be high taxes on all prepared sugary / corn syrupy foods, all fast foods, all fried foods and all snacks, but that won't go anywhere. There's an obesity epidemic in the US for a reason, and nobody can say our diets have nothing to do with it.

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Reply by duncan 906, Feb 9, 2013.

I still say these things are a matter of education and culture

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Reply by Richard Foxall, Feb 9, 2013.

Duncan906:  Those things help, but the study in British Columbia shows that economic moves like a floor price really do work. There are many ways to test these kinds of programs, rather than simply adopting a mantra.  Cass Sunstein co-authored a book called "Nudge" that covers a lot of this ground.  If pricing didn't affect behavior, there would be no such thing as a market.  Say what you like, but that's some pretty strong evidence that markets work and can be harnessed to achieve some goals that education cannot.  And that prohibition didn't work, either, or achieved less at much worse costs.

GregT, the bootlegging issue is an interesting one.  Doing province by province testing in Canada probably works better than varying tax schemes in the tri-state area because of geography.  From Vancouver to the nearest decent size place in the Alberta is a crazy long drive.  But bootlegging isn't a reason not to do it.  And guess what?  If the U.S does it, and Canada does it, that leaves most of the country out of reach of the only other place that could be a logical locus of bootlegging.  The premium that bootleggers (like pot dealers) charge to do something illegal wipes out the savings, and pretty soon we have a bunch of Joven drinkers instead of Thunderbird drinkers.

The great thing about the "floor price" method is that it doesn't require collecting a tax.  The manufacturer can just raise the price and avoid the tax altogether.  And it doesn't affect the higher quality goods in the market.  It's absolutely regressive IF poor people are only drinking rotgut.  It's not regressive if they are drinking reasonably priced Cotes du Rhone or similar, and drinking less of it. 

I am generally against sales taxes as a way to raise revenue BECAUSE they are so regressive.  However, a floor on alcohol prices does not affect necessities. (If you think wine is a necessity, you probably think it's something to drink with meals, not something to pour down your gullet until you are senseless.)  Given how much overconsumption of alcohol affects the health and economic prospects of the poor, NOT imposing a floor, on this evidence, is probably more regressive. 

It is paternalistic.  So are seatbelt laws, child safety seats for children, airbags in cars, smoking bans and a ton of things.  I'm absolutely no prohibitionist, just intimately involved in public health and welfare, and not very interested in preserving the marketplace for Cisco and St. Ides.


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