Pennsylvanians are used to buying their pinots and bourbons from state-run Fine Wine and Good Spirits stores, but most are probably unaware that the Keystone State is also using alcohol sales to enact stealth tax increases.

Like many so-called “control” states, the Pennsylvania Liquor Control Board sets the markup prices for the alcohol it sells to the public. The revenue derived from these markups is used to help fund the state government at-large, which means the markups are functionally analogous to taxes. This setup is problematic on many levels, and it’s far past time for Pennsylvania to reform it.

The PLCB originally applied a fixed 30 percent markup to spirits, but Pennsylvania made headlines recently by switching to a flexible pricing scheme that allows the PLCB to negotiate discrete prices with drink sellers. This change was heralded as a reform that would allow the PLCB to secure lower drinks prices for consumers. In reality, the board is using its new flexibility to raise prices on 421 alcohol products.

In addition to higher booze prices, the PLCB’s new markup authority gives it de facto taxation power. As courts frequently have recognized, when fees are used to fund the government at-large, that makes them, in effect, taxes. Worse still, with the advent of its flexible pricing power, the PLCB is able to act on its own to raise markups, meaning its taxing powers are unchecked by other branches of government.

Governments do, of course, impose many types of fees on residents, but none of them are similar to state alcohol markups. Things like bus fares or tolls are regulatory fees used directly to fund the service being provided; tickets and citations are primarily used to dissuade undesirable behavior. In contrast, markups attach to a specific consumption good — in this case, alcohol — and one of their main purposes is to fill the government’s purse.

The connection between the PLCB’s markups and general government funding increasingly has become explicit. When the PLCB announced its recent price increases, an agency representative cited the rising costs of public pensions and unemployment benefits as the reason for the hikes. Gov. Tom Wolf even took it a step further by proposing that PLCB profits be used as security for state loans, further underscoring the relationship between the markups and government funding.

Defining what actually counts as a tax is important, since our democratic system of governance long has recognized that only elected representatives should able to enact taxes. This tradition extends back to early English law and was reflected in the American colonists’ cry for “no taxation without representation.” As the Supreme Court has noted, the “only security” against the abuse of the tax power is ensuring that the people’s representatives in the legislature have ratified the tax. Giving the PLCB — whose officials are unelected bureaucrats — the power to raise taxes clandestinely violates these foundational principles.

Perhaps worst of all, allowing PLCB officials to raise markups outside of the traditional legislative process effectively hides the bill from state taxpayers. Instead of using traditional tools — such as sales or income taxes — to raise more money for government services and benefits, states like Pennsylvania lean on their government-run liquor systems to gin up revenue. This allows state politicians to avoid politically contentious ideas like calling for direct tax increases or spending cuts, instead shifting the burden of funding the government onto the consumers of private goods like alcohol.

Pennsylvanians should demand that their legislators in Harrisburg put an end to this charade. Any increase in PLCB markups should be treated as a tax that requires at least some form of legislative approval.

Better yet — Pennsylvania should get out of the liquor business entirely and privatize its alcohol sales, like the majority of states. Until then, the stealth taxes will continue.

Image by Helen89


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