Washington’s Liquor Privatization Did Increase Prices, But Also Selection And Availability

by Michelle Minton on January 15, 2013

in Deregulate to Stimulate, Features, Nanny State, Personal Liberty

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Since selling off the state-owned liquor monopoly, many Washington State residents have noticed an unfortunate development; despite what proponents of privatization promised, the cost of buying liquor in the state did not go down and in fact jumped. The cause of the increase in prices wasn’t the free market or greedy businesses taking the place of the benevolent state-run stores. It was the massive increase in taxes and fees that forced privately run liquor stores to charge more. That said, some of the benefits promised by those supporting a free market for liquor have materialized.

As I and others have discussed in the wake of the passage of Initiative 1183, the proposal voters approved to allow the sell-off of state owned liquor operations included a bundle of new taxes and fees on retailers and distributors of liquor in Washington. As a result, the prices on many types of alcohol jumped in the wake of privatization, making some residents question what exactly it was they voted for.

According to Kirsten Johnson at the Puget Sound Business Journal, the average price of a liter of booze with taxes has increased about $2.50 since September 2011 (I-1833 went into effect in June 2011). Of course, some of that increase is due to the increase in fees, taxes, and tax revenue obligations written into the initiative, including a 17 percent tax on liquor sales that retailers pay to the state and the 10 percent tax on sales that distributors pay to the state. This is in addition to the taxes Washington already placed on liquor before I-1183, which, according to the Tax Foundation, “are some of the nation’s highest at $26.70 a gallon. The national average is $7.02 a gallon.”

And despite a lot of whining about how things shook out after privatization, all indications are pointing to positive changes for alcohol consumers. For one thing, there are now 10 times as many retailers selling spirits, including national retailers like BevMo and Total Wine — increasing selection for not just liquor drinkers, but beer and wine as well. Perhaps this increased availability and selection are responsible for increases in sales. According to the Puget Sound Business Journal report, spirit sales were up 2.9 percent by volume during the four months post-privatization compared with sales the previous year — and that’s despite the 11.6-percent price increase.

It’s hard to say what the market would look like had privatization occurred minus the new taxes and fees. However, we can look to the other effects of privatization — such as selection and availability, which were not as constrained by I-1883 as prices were — to see that the law privatizing sales could have been better. This doesn’t mean that Washington State residents should turn their backs on privatization, but rather seek to remove the artificial costs of selling liquor that are the true cause of higher prices post-privatization. This is also a cautionary tale for those in other states like Oregon, Idaho, and Pennsylvania as they consider if and how they should privatize their liquor sales.

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