The Nittany Lion Drink Tax

December 15, 2008

Borough officials in State College, PA, home of Penn State University and the PSU Nittany Lions, are considering adopting a tax on alcoholic drinks purchased at bars and restaurants. The borough is struggling to balance its $17 million 2009 budget, and the leading proposal is to implement an Allegheny-style poured drink tax at a rate of up to ten percent. Supporters of the tax say that PSU students consume more government services than they pay for, and levying a tax on drinks purchased at bars in the area will help balance the burden of funding essential local government services like police protection.

This line of reasoning has some holes. First of all, alcohol consumption is probably not a good proxy for the amount of services consumed, as drinkers and nondrinkers both benefit from local services. And a poured drink tax would be ineffective at targeting students for at least two reasons: it would fail to increase taxes on students who don’t go out to drink, and it would hit non-students who go out for a drink just as hard as it would students. If it is true that students don’t pay enough for local services, then a fairer and more direct way of taxing them would be to tax tuition or college enrollment.

Also, supporters of the tax claim that students don’t pay local taxes, but this is not entirely true. Students don’t live in State College for free. While the University is exempt from property taxes, many students live off campus and pay rent to live on property that is subject to property tax. The owners of that property will certainly pass the property taxes onto students who are renting, just like any other renter. So, even the fact that someone is a student does not mean they are not paying their fair share of the tax burden.

On a side note, the people pushing for this alcohol tax seem to forget that they owe a lot to the existence of PSU and its 44,000 students. Consider: would residents of State College be better off without all these allegedly freeloading students? What would happen if all the students who supposedly don’t pay taxes were suddenly gone tomorrow? Would State College then thrive, being free of the parasitical student population? No. More likely their economy would collapse. The city and the businesses are there because the students are there, and thousands of people make a living supporting and providing services for the University and its students. Without the students to profit from, State College would probably be a very different place.

This drink tax is just another example of policy makers singling out politically unpopular groups to raise revenue. The better option would be to raise broad based taxes and possibly even cut spending.

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