Monday, August 16, 2010

I-1100 will generate a good $300 million a year for state and local government

Certain press reports on the OFM's flawed fiscal analysis predict that I-1100 will cause the state to "lose" money. But they failed to mention an extremely important point. Initiative 1100 (but not 1105) maintains the current tax rates on alcoholic beverages. Last year these generated $223 million, $30 million and $20 million on spirits, beer and wine respectively. (It might seem a bit of a stretch to include beer and wine taxes in a discussion of spirits privatization, but the Liquor Board always includes beer and wine taxes in its accounting of what it "returns to the state", so we include it for an apples-to-apples comparison).

License fees and penalties, nearly all of which is distributed to other government programs as Liquor Board "profit",  amounted to another $12 million last year. Those will still be collected after 1100 passes. (New retail spirits licenses will be retained by the Liquor Board to increase the enforcement budget). When the wine currently sold in state stores is sold in regular retail stores, the same $2.5 million in retail sales tax collected by the state stores last year (and included by the Board in the total revenue it claims as its contribution to state and local coffers) will simply be collected by retail stores. Private sector retailers and wholesalers will also pay state and local B&O tax. Per the tax rates in the OFM's Tax Reference Manual, and using standard mark-up estimates, the total combined state+local B&O rate on wholesale+retail is about 1.7% of the manufacturer's price. Based on the Liquor Board's nearly $400 million in  product purchases in each of the last few years, B&O tax will bring in another $7 million or so each year..

Of course the specific numbers will vary from year to year and will depend on impossible-to-predict product prices and consumer purchase volume. Then there are known, but harder to quantify benefits such as increased tax revenue from state residents choosing to buy more reasonably priced liquor in-state, instead of buying out-of-state; increased private sector business activity from new private sector jobs, etc.

Another difference between current and post-1100 liquor revenues is the inflated "mark up" that the Liquor Board tacks on to the store price.  The foregone mark up would amount to about $29 million a year for the state general fund, roughly 0.08% of the total state budget of $35+ billion a year. A similar amount would be divided among all the cities and counties in the state.  The Legislature gets to decide next session, before the state stores close, whether it's necessary to raise the liquor tax by the same amount as the Liquor Board's excess mark up, or not.

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