Liquor Tax Hike Would Hurt the Little Guys

by Michelle Minton on May 1, 2012

in Features, Nanny State, Personal Liberty

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D.C. Councilmember Jim Graham’s proposal to increase the alcohol excise tax by “6 cents a drink” is not as innocent as he makes it out to be. As I discussed during the Maryland tax-hike debate, these per drink taxes actually hurt small businesses owners who must pay more for the alcohol that they sell in their establishments. Additionally it hurts servers in restaurants and bars by reducing the amount they are tipped.

The current excise tax on alcohol in the District is $1.5 per gallon of liquor, 30 cents per gallon of wine, and 9 cents per gallon of beer. Mr. Graham hasn’t stated the actual amount he’d like to raise these excise taxes and if that will encompass all three types of alcohol, but regardless of the numbers, there are better ways to raise revenue for the city that strengthen the economy rather than making it more difficult for businesses to operate here.

Despite the ever-so-small sounding “six cents per drink” increase, really the taxes are assessed in one lump sum from the wholesalers. Those wholesalers will then turn around and increase the price they charge to bars, restaurants, and stores. Taken as a whole, the increase in operating expenses is not insignificant. For example, the average 750 milliliter bottle of liquor contains about 23 shots of 1.5 ounces. So, if the tax is increased by “six cents a drink” the increase in the tax per bottle of liquor would be almost $1.40. Consider that bars and restaurants buy hundreds of bottles at a time — that can up to hundreds or thousands of dollars extra that these businesses will pay.

Most businesses will simply then charge the consumers more in the hope that they can recover the additional cost of purchasing their goods. For stores this means that some customers might choose to purchase their alcohol elsewhere if it is cheaper. For restaurants and bars already in D.C. they might raise the cost of drinks, but they might also raise the cost of all of their items to spread out the additional expenses. That means that even people who aren’t drinking in D.C. will end up paying for the increased alcohol tax.

Worst of all, those folks who earn their living by serving customers in bars and restaurants will likely see their tips decrease as a result of a tax increase. Most people who drink at bars calculate the tip by leaving a few dollars more than the bill — rounding up. If their drinks increase by a few cents they aren’t going to add a few cents to their tip, they’ll just keep rounding up. That means the people who are actually paying the 6 cents are bartenders and waiters who already receive pretty low wages. While it may not seem like much to some folks, it is pretty significant for those struggling to get by in the expensive D.C. metro area.

If Councilman Graham really wants to help D.C.-residents, perhaps he should reconsider his opposition to Sunday liquor store bans and extended bar hours — both of those proposals would bring additional revenue to businesses, workers, and the District. Whatever plan he decides to support, making it more difficult for people living and working in D.C. is definitely not the way to improve the city.

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