Alcohol taxes are placed on all alcoholic beverages, ranging from beer and wine to hard liquor. There are two taxes – a state alcohol tax and a federal excise tax. The tax is used in a variety of ways, ranging from helping those who struggle with problems relating to alcohol to anti-drunk driving campaigns to being placed in the general fund.
Alcohol Tax Is a Sin Tax
The tax placed on alcohol is known as a "sin tax." Sin taxes are so called because they are placed on items that are deemed to be unhealthy, morally dubious or socially harmful. Globally, substances such as alcohol, tobacco and sugar have been the targets of sin taxes, as well a activities like gambling. The theory behind the sin tax is the increase it causes in a product will discourage individuals from using that product.
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In reality, however, there appears to be little evidence to support the idea that a sin tax will be a deterrent to the bad behavior – although it does create revenue for the government. However, if the tax is high enough to make the product too expensive, there is a reduction in usage.
Federal and State Tax Rates
The federal government imposes a federal excise tax on alcohol, tobacco and firearms. Rates vary according to the type of alcohol and volume produced. For example, the federal excise rate is $3.50 per barrel for domestic beer brewers producing fewer than two million barrels annually. This federal tax is used, in addition to various alcohol treatment programs, as part of general revenue.
Alcohol taxes vary from state to state. There can be a wide discrepancy in the tax rate. For example, the highest spirits tax in the country is in Washington at $33.22 per gallon. The second-highest tax in the state of Oregon comes in $10 cheaper at $21.95. Michigan, by contrast, is just $11.95.
Why Use an Alcohol Tax?
As ironic as it might seem, the alcohol tax can help cut down on alcohol-related incidents. Even though the tax might not cause a person not to drink because of the slightly higher price, using the tax money in order to fund programs dealing with the negative effects of alcohol can result in lowering deaths due to alcohol-related incidents.
Just as the tax on tobacco products has helped to raise awareness of the dangers of tobacco by funding anti-tobacco programs, the alcohol tax is used in providing money to programs designed to reduce drunk driving and other alcohol-related problems.
Alcohol taxes can also be used by individual cities which have imposed a sales tax on the alcohol. The money collected can be used in a variety of ways, either as general revenue for the city or to fund specific projects. At times, this can lead to legal conflicts over who has the authority to use the tax money, with courts having the final decision in the matter.