Alcohol Tax Bill Targets Consumption, Budget Deficit

Image courtesy of Big Island Brewhaus.

The Hawai‘i State Legislature in 2021 is considering several new taxes on items largely considered to represent human vice, including sugar, tobacco products and alcohol.

House Bill 771 proposes a three-year surcharge on the state’s liquor tax without tethering itself to a specific amount of increase — a tactic not uncommon in early legislative phases to allow for flexibility as a measure moves through committees. However, in the bill, its authors note that a 5-cent surcharge on every drink consumed statewide annually would net $32 million in revenue, while a 10-cent surcharge per drink would net slightly less than double that amount.

Nowhere in the bill is there language referencing Hawai‘i’s projected budget shortfall of more than $1 billion for the fiscal year, caused almost entirely by the coronavirus pandemic. The rhetoric instead focuses solely on the benefits to public health and the boon to the state’s economy should its population consume less alcohol as a result of the so-called “sin tax.”

Though, rookie Representative Jeanné Kapela of the Big Island’s 5th District, who co-introduced the legislation, has acknowledged its intent to serve multiple purposes.

“More than anything, this is about the deficit. Our state has a $1 billion shortfall that we need to fill,” Kapela said. “Increasing taxes, when you’re looking at a sin tax, these are the things that are getting the most play right now. We are also making sure that we are taxing some of the things that (are) not as regressive as our (General Excise) tax, which targets the working poor.”

While the Centers for Disease Control and Prevention (CDC) indicate that lower-income people statistically smoke more tobacco and consume more sugar than their wealthier counterparts, the regressive nature of an alcohol tax is murkier. The CDC says that affluent individuals binge drink on more occasions over any given period of time, but lower-income people actually consume more binge drinks overall, which means they are taxed at a higher rate.

A concern with all sin taxes — besides their potential to unevenly impact poorer segments of the population — is the inherent contradiction between taxing public consumption of an item to generate revenue while attempting to price people out of a behavior that will ultimately fund essential government programming.

Data referenced in an analysis of sin taxes compiled by The Pew Charitable Trusts in 2018 said research suggests levying such surcharges ultimately does inhibit unhealthy behavior to a degree. This, however, calls into question the reliability of a measure like HB 771 as a long-term revenue source.

While examples exist of taxes being repealed and/or replaced at every level of government, once a sin tax is enacted, it is likely to both remain in place and see increases with the passage of time. According to Pew, the median state tax on cigarettes increased by 400% between 2000 and 2017.

Thus, local purveyors of alcohol are concerned about what hiking fees on consumption will mean for the present and the future.

“With an increase in price on the shelf to our consumer, we will see a migration of sales to cheaper products, which are most likely imported, rather than supporting our local craft manufacturers,” said Naeha Breeland, president of Ola Brew Co. on the Big Island.

That downturn, she added, could also negatively impact the state’s agricultural industry.

Jeanné Kapela

“It is sad to think that with an increase in liquor tax, our sales could decrease, which definitely affects the Hawai‘i farmers and the amount of ingredients we are buying from them.”

Breeland added that Ola Brew, like many other island purveyors of spirits, has spent the last year navigating price hikes throughout the industry. Manufacturers have increased the cost per can as well as the price of cardboard used for shipping. Hawai‘i’s Public Utilities Commission (PUC) also granted a request from Young Brothers, LLC to bump its interisland shipping rates by 46%.

With the cost of business rising, and the number of visitors to Hawai‘i and public patronage of local entities still well below pre-pandemic norms, many small businesses have been or may be forced to hike up the price of their products on the shelf.

Kapela said state legislators are sensitive to the plight of small businesses during the coronavirus era.

“I do think taxes are going to go up overall. We are stuck in a tough position,” she said. “Small businesses need a tax credit to help them. Lifting (interstate) shipping restrictions (on alcohol) is one of the things we’re trying to pass through, as well.”

“We don’t want to put our small businesses at risk, and we don’t want to hurt them,” she continued. “But we want to make sure our state can get out of this crisis.”

Kapela also noted that the Legislature has not raised Hawai‘i’s alcohol tax rate in more than 20 years, and that the state has one of the lowest rates in the country. Distilled spirit taxes per gallon in the State of Washington, which ranks the highest in the US, total $32.52. In Hawai‘i, that number is $5.98, which ranks 25th in the country.

Photo courtesy of Volcano Art Center.

The taxes per gallon of beer in Hawai‘i are a different matter, coming in at 93 cents per gallon. That is the third-highest rate in the United States based on an informational graphic provided by the Tax Foundation, which can be accessed via the following link: US Beer Tax Rates.

“While I do support this bill and its intent, I also want to make tourists pay their fair share,” Kapela said. “I have introduced a bill that would tax the rich, (implement) tax fairness, and make sure they pay their fair share, as well.”

Breeland, too, said she sees value in the public health goals of HB 771, but contended that there are better avenues to achieve those goals aside from taxing local businesses and consumers directly.

“What they’re talking about is excessive drinking, and I don’t think that it is a horrible thing for them to shed light on,” Breeland said. “However, I don’t think that raising taxes on the consumer is the way to address that. I think social programming is a better way.”

“Don’t just raise taxes because they haven’t been raised in awhile,” she added. “If they are going to raise them, then let’s work together toward a compromise.”

House Bill 771 is scheduled to be heard by the House Committee on Consumer Protection & Commerce Wednesday at 2 pm. Those interested may submit testimony by visiting the Hawai‘i State Legislature website.