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Optimal U.S. State Alcohol Excise Taxes to Recover Government Cost of Excessive Consumption
Author(s) -
Shafer Holley
Publication year - 2014
Publication title -
world medical and health policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.326
H-Index - 11
ISSN - 1948-4682
DOI - 10.1002/wmh3.103
Subject(s) - excise , economics , tax revenue , consumption (sociology) , ad valorem tax , gallon (us) , tax rate , revenue , indirect tax , public economics , government revenue , direct tax , value added tax , agricultural economics , tax reform , monetary economics , finance , engineering , macroeconomics , social science , sociology , aerospace engineering
Excessive alcohol consumption causes $223 billion in economic harm each year, including $94 billion in direct cost to federal, state, and local governments. The median for direct costs to states is $2.9 billion. For each U.S. state, revenues from specific alcohol excise taxes in 2006 and net revenues for control states were compared with recent state estimates of direct government cost of excessive consumption. Optimal state excise tax rates to internalize government costs were then calculated. Optimal state tax rates per ethanol gallon (gallon of pure alcohol) range from $77.70 to $276.28, with a mean of $185.95. Current state tax rates per ethanol gallon range from $0.24 to $26.05. The average per‐drink tax increase needed to achieve the optimal rate is $0.84, and the median is $0.85. New Hampshire has the lowest increase needed to achieve the optimal rate, at $0.35 per standard drink, and Oklahoma the highest at $1.25. Currently no state levies excise taxes at a rate that internalizes its direct government costs. Recommendations include levying tax rates volumetrically across beverage types and indexing tax rates to inflation. State policymakers may use the estimated optimal tax rates, along with assessment of state‐level factors contributing to excessive consumption, to increase the effectiveness of their states' alcohol policies.