Alcohol Excise Taxes & the Prevention Status Reports

What are the Prevention Status Reports?

As described by the CDC, “the Prevention Status Reports (PSRs) highlight – for all 50 states and the District of Columbia – the status of public health policies and practices designed to address [10] important public health problems and concerns.”3 The public health problems covered by the PSRs are: alcohol-related harms; food safety; healthcare-associated infections; heart disease and stroke; HIV; motor vehicle injuries; nutrition, physical activity, and obesity; prescription drug overdose; teen pregnancy; and tobacco use.3 For alcohol-related harms, the two evidence-based policies on which the 2015 PSRs report are commercial host liability and state excise taxes.21 The 2013 PSRs also reported on local authority to regulate alcohol outlet density (e.g., state preemption).22

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Why are alcohol taxes included in the PSRs?

To be included in the PSRs, a public health policy must meet at least one of three criteria. It must be:

  • Supported by systematic review(s) of scientific evidence of effectiveness (e.g., The Guide to Community Preventive Services);
  • Explicitly cited in a national strategy or national action plan (e.g., Healthy People 2020); and/or
  • Recommended by a recognized expert body, panel, organization, study, or report with an evidence-based focus (e.g., Institute of Medicine).

Alcohol taxes meet all three of these criteria.

Systematic reviews of the literature: The Community Preventive Services Task Force (Task Force) is an independent, nonfederal body of research experts.The Guide to Community Preventive Services (The Community Guide) is based on a scientific systematic review process that examines the effectiveness of various public health strategies. Based on these reviews, the Task Force produces recommendations to help inform federal, state, and local health officials as well as other stakeholders and partners. The Community Guide systematic review process was used to assess 78 studies on alcohol pricing and found that both increased prices and increased taxes were consistently related to fewer motor vehicle crashes and fatalities, lower rates of alcohol-related violence and sexually transmitted diseases (STDs), and reduced incidence of alcohol dependence and liver cirrhosis, among other adverse consequences.1 Wagenaar et al. and Babor et al. conducted systematic reviews of the research literature and reached similar conclusions.4,8,23

Cited in a national strategy or national action plan: In 2003, the National Research Council (NRC) and the Institute of Medicine (IOM), now the Health and Medicine Division of the National Academies of Sciences, Engineering, and Medicine, recommended increasing alcohol taxes as part of a national action strategy to prevent underage drinking. Congress requested and funded the NRC/IOM to develop such a plan.2 In 1989, the Surgeon General’s Workshop on Drunk Driving proposed a national action plan for preventing alcohol-related motor vehicle crashes. It recommended that states and the federal government: (1) Equalize state and federal excise tax rates by ethanol (pure alcohol) content across all beverages by increasing beer and wine taxes to the rates imposed on distilled spirits; (2) Adjust the resulting equalized rates for past inflation to reflect the Consumer Price Index since 1970; and (3) Annually adjust for inflation in the future. The Workshop also recommended that states increase their alcohol taxes to at least the levels of bordering states.24

Recommended by expert bodies, panels organizations, studies, or reports with an evidence-based focus: Both the Task Force and the IOM explicitly recommended increasing alcohol taxes to reduce excessive alcohol use based on reviews of the research literature.2,25 The National Institute on Alcohol Abuse and Alcoholism’s (NIAAA) Task Force of the National Advisory Council on Alcohol Abuse and Alcoholism recommended increasing alcohol taxes as part of its Call to Action to prevent college drinking.26 Additionally, the World Health Organization has identified raising alcohol taxes as one of the three “best buys” for reducing the harmful use of alcohol — that is, a strategy that is both effective and cost-effective.27

In addition to meeting one of the three criteria noted above, in order to be included in the PSRs, a public health policy must have sufficient data available such that the policy can be tracked and reported across 50 states and the District of Columbia. Alcohol excise taxes meet this additional criterion because alcohol tax policy data is available from NIAAA’s Alcohol Policy Information System.28

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Why are taxes on distilled spirits, wine, and beer treated separately in the PSRs?

The PSRs recognize the fact that federal, state, and local governments impose differing tax rates on the three major categories of alcoholic beverage: distilled spirits, wine, and beer. Accordingly, they report on the state excise tax rates for each type of beverage separately. Note, however, that the PSRs only include state policies and practices and therefore do not include data on local alcohol taxes. Also, other types of alcoholic beverages (e.g., hard cider, vermouth, alcopops, malt beverages, or “flavored alcoholic beverages”) may have their own tax rates, or, in some states, may be taxed as beer, wine, or distilled spirits, but these other types of alcoholic beverages are not included in the PSRs.

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Do all the beverages within a category (beer, wine, or distilled beverages) get taxed at the same rate? How do the PSRs deal with differing tax rates within a category of alcoholic beverage?

Beer, wine, and distilled spirits of differing alcohol content may have distinct tax rates. For example, a low-alcohol-content beer (e.g., 3.2 percent alcohol) may be taxed at a lower rate than a beer with a higher alcohol content (e.g., a malt liquor with 8 percent alcohol).28

Because alcoholic beverages of differing alcohol content may have different tax rates even within a category (e.g., a low-alcohol-content beer may be taxed at a lower rate than beer with a higher alcohol content), the PSRs report on the tax rate for the alcoholic beverage strength associated with the definition of a standard drink for each beverage type. These are: 5 percent alcohol for beer, 12 percent alcohol for wine, and 40 percent alcohol for distilled spirits.

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Why aren’t taxes on alcoholic beverages that aren’t beer, wine, or distilled spirits included in the PSRs?

In some cases, states define various forms of alcohol differently, making comparisons across states difficult. Because of these complexities, the PSRs report only on alcohol taxes applying to beer (5 percent alcohol), wine (12 percent alcohol), and distilled spirits (40 percent alcohol).

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Why do the PSRs only report on excise taxes?

The PSRs attempt to provide data that are readily comparable across states. Although ad valorem or sales taxes may be an important component of a state’s alcohol taxing system, it is hard to compare ad valorem taxes and excise taxes, and there is no generally agreed-upon way to do so. For the 2013 and 2015 PSRs, only excise taxes are reported because they are by far the most common form of state alcohol taxes and data are readily available from all states.

For those who are interested, NIAAA’s Alcohol Policy Information System reports on state ad valorem alcohol taxes.

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In the context of alcohol taxes, what do the PSR classifications green, yellow, and red mean?

As noted on the CDC’s PSRs website, a “green” rating indicates that the policy or practice is established in accordance with supporting evidence and/or expert recommendations. A “yellow” rating indicates that the policy or practice is established in partial accordance with supporting evidence and/or expert recommendations. Finally, a “red” rating indicates that the policy or practice is either absent or not established in accordance with supporting evidence and/or expert recommendations.

The state tax ratings included in the PSRs are based on actual state alcohol tax levels. The cut-points that were used to rate state alcohol taxes are therefore based on the distribution of alcohol excise taxes in states by beverage type. They are not based on recommendations about the most effective tax levels. In fact, expert reviews of the available research do not recommend a specific tax level. However, they do provide the following findings: (1) Larger alcohol tax increases are generally associated with greater reductions in alcohol-related problems,23 and (2) Alcohol tax rates have not kept pace with inflation over time, and therefore have become less effective with respect to reducing excessive drinking.29

Using these two research findings as a guide, states with comparatively high alcohol taxes were rated as “green,” (at least $1 per gallon for beer, $4 per gallon for wine, and $8 per gallon for distilled spirits). In 2015, 4 states were rated “green” for beer taxes, 3 were rated green for spirits taxes, and 2 were rated green for wine taxes.21 States with intermediate tax levels were rated yellow (at least $.50 per gallon for beer, $2 per gallon for wine, and $4 per gallon for distilled spirits); 4 states were rated yellow for beer taxes, and 11 and 8, respectively, for spirits and wine taxes.21 States with lower tax levels were rated “red”; 42 states were rated red for beer taxes, and 20 and 29, respectively, for spirits and wine taxes.21

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What are control states and why do the PSRs provide ratings for these states in some cases but not others?

The term control state refers to a state where at least some portion of the wholesale and/or retail alcohol market is operated and controlled by the state itself (e.g., ABC stores).30 In these cases, the state gets alcohol revenue not just from taxes but also from setting prices and extracting profits from wholesale and/or retail off-premises sales. Such a state may own and operate a wholesale or retail business, or it may contract with a private vendor but maintain control over pricing and profits. In the latter case, the private contractor may receive a fee or commission. Control states are also sometimes referred to as monopoly states.

There are currently 17 control states, all of which were established at the end of Prohibition.30,31 (In 2012, Washington was the first state since the repeal of Prohibition to completely privatize its control system.31) The control states vary in terms of the industry “tiers” they regulate (i.e., wholesale and/or retail) as well as the types of beverages they subject to state control, with distilled spirits being much more common than wine and beer.30,32

When a state exercises even partial control over one of the three types of alcoholic beverages at either the retail or wholesale level, it influences the retail price through administrative decisions. These state-imposed price increases are often hard to distinguish from alcohol taxes. For example, a control state may have a distilled spirits tax of $1 per gallon. In addition, the state may add a $1 per gallon markup beyond what might be anticipated as a standard retailer or wholesaler markup. The additional markup serves as a form of tax, though it is difficult to determine what portion of the markup should be treated as a tax.7 For this reason, the PSRs do not apply the green/yellow/red rating system to any type of alcoholic beverage subject to state control. Note that a state may exercise control over one type of beverage (e.g., distilled spirits) but not another (e.g., beer). In this case, the PSRs would rate the state tax on beer but not on distilled spirits because distilled spirits fall under state control.

NIAAA’s Alcohol Policy Information System provides a comprehensive analysis of the 17 control state systems.

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