Alcohol & State Budget Policy in KY

December 3, 2014

A New York Times post recently implied that the state of Kentucky can pull itself out of a financial hole by selling more whiskey, citing recent state policy eliminating many alcohol taxes and fees. What the NYT neglected to mention is the already-enormous economic burden of excessive alcohol consumption and the potential public health impact of increasing production (and therefore consumption) in the state. And while it mentioned that a few states have passed alcohol excise tax increases in the last several years, it also failed to differentiate why raising taxes is a completely different policy option than promoting alcohol production and sales, one that protects public health and is likely to have a more significant impact on state budgets.

Here is the economic reality of alcohol's cost in Kentucky:

  • The cost of excessive alcohol consumption costs the state $2.8 billion in economic harm, or $657 per person.

  • The proportion of this cost directly borne by government is $1.2 billion.

  • Combined federal and excise tax revenues cover just 18% of the direct government cost.

  • There are 1,351 alcohol-attributable deaths in Kentucky each year.

Kentucky's situation is similar in most other states; median economic harm is $2.9 billion annually, and governments must cover 42% of these costs, despite diminishing excise tax revenues. Excise taxes are rarely increased at the state or federal level, and almost never indexed for inflation, so inflation erosion exacerbates the problem of already too-low tax rates. At the federal level, between 1991 (the last time the federal excise tax was increased) and 2011, alcohol sales revenues increased by 129%, while excise tax revenues by only 40%. This has added up to $65 billion in federal revenue lost, now up up to $7 billion each year.

Given the staggering economic cost of excessive consumption, raising alcohol excise taxes makes much more sense than a policy investing in alcohol industry promotion. Raising alcohol excise taxes is the most effective public health intervention to prevent excessive alcohol consumption and related harm, as well as providing a rich source of revenue for state coffers. A $0.25 per-drink increase in Kentucky's alcohol excise tax would create more than 5200 new jobs without increasing alcohol-related harm and its associated costs. It would also bring in $330,000,000 in additional tax revenue to the state.

The NYT post is a chorus out of the whiskey and craft beer songbook, painting alcohol producers as saviors of the state economy. It echoes alcohol industry PR machines such as the Distilled Spirits Council of the United States (DISCUS) and the Beer Institute, and gives credence to misleading claims that alcohol production provides a net gain for the economy by creating jobs. It also sounds and looks a lot like information provided to journalists when they were treated to an all-expenses paid Spring Break party by DISCUS earlier this year.