Sales Tax on Alcohol

Tomorrow people in Massachusetts will vote on three ballot questions. Two have to do with taxes. Question 3 would reduce the rate of the state sales and use tax from 6.25% to 3%.

Question 1 would remove the sales tax from alcoholic beverages. Before last year, there was no sales tax on alcohol. There is no sales tax on food, clothing, or prescriptions in the state.

I think sales taxes are very regressive and an unfortunate way to raise revenue. The basic rate for the Massachusetts income tax is 5.3%, which is less than the sales tax. Income taxes can be progressive and can even redistribute income but they are politically unpopular. Apparently, sales taxes are less unpopular.

I have not decided how I am going to vote on Question 1 because the liquor industry already pays excise taxes so the sales tax is, in some way, double taxation. Governments have usually seen alcoholic beverages as appropriate for taxation because they supposedly have inelastic demand.

Prior to Prohibition, the states did not generally tax distilled spirits, beer, or wine. Since Repeal, many states generate significant revenue through taxiing alcohol.  Only five states do not have a sales tax on liquor.

Both before and after prohibition, some legislators have felt that taxing alcohol provides benefits to society since it could potentially reduce drinking. This attitude would imply an elastic demand. Since the 1980s, public health advocates have called for increased taxation of alcohol to help pay for the societal costs associated with alcoholism, drunk driving, and other manifestations of alcohol abuse.

Usually the government’s need for revenue is what wins out. It is interesting that Massachusetts is looking at losing revenue from alcohol while California is seeking to gain revenue from legalizing marijuana. Legalizing the recreational use of pot would enable California municipalities to generate tax revenue, which would help shore up sagging budgets.

I urge everyone to vote tomorrow because voting is a privilege. If you don’t vote you shouldn’t complain.

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