Attention Pittsburgh: New Alcohol Tax May Hit Iron City

July 10, 2007

If you live near Pittsburgh and enjoy a drink, it appears you may be on the hit list as the County Council of Allegheny County, the home of Pittsburgh, may soon have the power to impose an extra 10 percent tax on alcoholic beverages that are served in the county. From the Pittsburgh Post-Gazette:

When the cash-strapped city of Pittsburgh sought a 10 percent tax on alcoholic drinks four years ago, local bar and restaurant owners rallied to block it.

Now Allegheny County could come looking for that 10 percent.

A proposed state Senate transportation funding bill designed to help the cash-strapped Port Authority would allow Allegheny County officials to raise taxes on poured alcoholic drinks up to 10 percent, as well as add a $2 tax on rental cars.

The bill still needs approval by the full Senate before being sent back to the House.

If approved, it would be up to the county to decide if a tax, and how much of a tax, would follow. But with the battle against the city still fresh in their minds, restaurant and bar owners are already sounding the alarm.

This proposal makes little sense in terms of sound tax policy. First, why should alcohol and car rentals be targeted as the only possible other sources of local tax revenue? Why not tax potato chips or ketchup or even Steelers merchandise? Those may sound like ridiculous targets, but they’re just as legitimate as arbitrarily picking alcohol. Or even better — why not put every consumer item in a hat and pick out one item to impose a heavy tax upon?

If the argument is that alcohol imposes negative external costs on Allegheny County, then the county and the state legislature are getting it all wrong for two reasons. First, if alcohol consumption is the culprit, then the tax should be levied based upon the alcoholic content, not the retail price of the item. Suppose it is Tequilla Night at the bar and drinks are only $2 while a beer is $4. There is going to be a lot more alcohol consumed in that Tequilla shot than in a beer, but by the logic of this bill’s supporters, the beer will be hit with a larger tax.

This is the same reason most cigarette taxes are levied per pack, and most well-designed alcohol taxes are levied per alcoholic content. They are based upon quantity and not the retail price. (In other words, according to this plan, a cheaper beer like Keystone will have a lower tax bill than an expensive beer like Budweiser.)

Second, if alcohol consumption is a negative externality, then shouldn’t the tax also apply to liquor store sales — those same liquor stores that the state government runs? Or is this tax merely a way to get people to purchase the alcohol at the liquor store rather than through a restaurant or club and that way shift money to the government in two ways? (Technically, if one assumes that the negative externality is drunken driving, one could possibly argue that the tax should be greater on establishments where alcohol consumption is more likely to lead someone onto the road rather than purchases at liquor stores, which are more likely to be consumed at home.)

A final problem with this tax is the obvious issue of border shopping. A tax that is levied merely at the county level rather than at a state or federal level is much more likely to lead people to shop outside the taxing jurisdiction. This is especially true for those living right on the county line.

In closing, politicians need to stop targeting single items for taxation (or possible taxation), despite their political appeal, and those citizens who believe in individual liberty need to ask these policymakers to explain why they want to target alcohol. Do they want to bring prohibition back? If they say no, then ask them what tax rate they would prefer and make them justify that amount on that specific item.


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