R Street Institute

Policy Studies Alcohol Policy

How states use liquor markups to hide the bill from taxpayers

by C. Jarrett Dieterle
Oct 12, 2017
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In states that hold a monopoly on the sale of spirits, liquor prices usually are set by a formula that includes at least one of three different components: taxes, fees and price markups. Markups are formally enacted by liquor regulators—usually in the form of a board—who are tasked to oversee alcohol sales in the state. In recent years, governments in these so-called “control states” have relied more and more on the revenue derived from these markups, as state lawmakers frequently have included calls for higher markups in their budget proposals.

These artificially created price bumps exceed the level of increase that would be sustained on the open market and the revenue from these increases often accrues directly to a state’s general fund. In this way, they function very similarly to taxes. Furthermore, liquor markups are readily distinguishable from nearly every other form of government-imposed fee, since they target a good designed for private consumption. Perhaps worse is that, despite their clear resemblance to taxes, markups frequently do not need to be ratified by state legislatures in the way that other taxes do. This allows lawmakers in control states effectively to hide the cost from state taxpayers.

Image by Trong Nguyen

 

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