Is Alcohol Consumption Undertaxed?

22-24
Research Area: Malaria, Alcohol and Tobacco
Type: Brief

The Question

Federal and state alcohol taxes have fallen from about 22% to about 10% of retail price. Is it time to reverse this declining trend and substantially raise tax rates?

What we found

Alcohol taxes have a valuable role to play in deterring drunk driving. Tripling alcohol taxes from 10 to 30% would reduce consumption by about 8 to 15% and raise about $20 billion per year in government revenue.

Why it matters

An alcohol tax of roughly three times the current level might be justified on economic efficiency grounds, and perhaps more if alcohol consumption negatively impacts workplace productivity. But this depends on productive use of revenues, and assumes continued failure to severely punish drunk drivers.