Raise the taxes on alcohol and tobacco
President Reagan has rejected increases in excise taxes on alcohol and tobacco. In the process he has spurned a golden opportunity to reduce the federal deficit by billions of dollars and save thousands of lives.
''Sin'' taxes have long been a way of generating revenue for government. In fact, a hundred years ago alcohol excise taxes accounted for half of all federal revenues.
Federal excise taxes net Uncle Sam about $6 billion on alcohol and almost $3 billion on tobacco. The liquor and tobacco industries are proud of reminding legislators that the money helps pay for schools and bombs. They argue that further increases would only kill the golden goose.
Though the excise taxes do bring in important revenue, the value of that revenue has been woefully degraded since the taxes were last raised 31 years ago. A 1951 dollar is worth only about 30 cents today. It would make perfect sense to hike the alcohol/tobacco taxes back to their original values, and to peg those taxes to inflation so they don't degrade by 10 percent a year in the future. Tripling the taxes would generate about $20 billion in new revenue.
In addition to compensating for inflation, historical inequities in the alcohol tax rates should be corrected. Many people used to think that liquor was much more effective than beer and wine in producing alcoholism. Thus, per ounce of alcohol, liquor is taxed at more than two times the rate of beer and 16 times the rate of wine. The federal tax is only three cents on a bottle of wine and less than three cents on a can of beer. Now, most experts contend that beer and wine are not really any better than liquor, especially when low prices, heavy advertising, and peer pressure encourage widespread teen-age drinking. Raising the beer and wine tax rates to equal that of liquor would bring in another $10 billion in new revenue.
The most troubling aspect about these taxes is that they are regressive: they affect the poor far more than the rich. In fact, the liquor industry, which has previously shown little concern about the plight of the poor, is now pleading that poor people would be especially hurt by a higher excise tax.