The District’s Combined Taxes on Beer and Wine Are Higher Than Those in Most States

Although the District’s excise taxes on alcoholic beverages are lower than those in most of the 50 states, the District’s combined tax rates on beer and wine are higher than those in most states because its sales tax is among the highest. Sales Tax Increases Have More Than Offset the Effect of Inflation on Excise Tax Rates for Most Alcoholic Beverages

All of the District’s per-unit excise tax rates have declined in inflation-adjusted terms since they were last changed. The increases in the sales tax rates have more than compensated for the lack of indexation of the excise tax rates for most of the beverage items we examined. The District’s alcohol excise taxes will continue to decline gradually in inflation-adjusted terms. Economic theory and empirical evidence indicate that higher alcohol taxes increase the prices for alcoholic beverages, and higher prices affect alcohol consumption. Many States Earmark Portions of Their Alcohol Tax Revenues for Specific Purposes

As of 1993, 24 states earmarked at least a portion of their alcohol excise tax revenues for specific purposes. Table 6 describes different types of education and skill-building programs that are commonly used to combat alcohol abuse and prevent drinking among youth. If an establishment sells alcohol to a decoy, it can be penalized. The District cannot conform its alcohol tax structure to those in all surrounding jurisdictions at the same time, because the tax structures among those neighboring jurisdictions differ significantly. The best current evidence suggests, however, that some legal and regulatory strategies, when enforced, can help reduce illegal drinking and alcohol-related problems.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO examined issues relating to the taxation and regulation of alcoholic beverages in the District of Columbia, focusing on: (1) a comparison of the District's alcohol taxes with surrounding jurisdictions; (2) whether those taxes could be set closer to surrounding jurisdictions; (3) how much higher the alcohol tax would be if it had been indexed for inflation; (4) which states earmark alcohol taxes for specific purposes; (5) whether raising alcohol taxes will reduce abuse; and (6) the characteristics of effective alcohol prevention programs.

What GAO Found

GAO noted that: (1) compared to taxes levied in nearby jurisdictions, the District's combined tax rates are higher because its sales tax is among the highest; (2) the District cannot conform its alcohol tax structure to match those in surrounding jurisdictions because tax structures among neighboring jurisdictions differ significantly; (3) the District's per-unit excise tax rates have declined in inflation-adjusted terms since they were last changed, and special sales tax rates on all alcoholic beverages have compensated for the lack of indexation of the excise tax rates, these taxes will continue to decline gradually in inflation-adjusted terms; (4) economic theory and empirical evidence indicates that increases in the District's alcohol taxes are likely to reduce alcohol use, especially among youths; (5) at least 24 states have earmarked at least a portion of their alcohol excise tax revenues for specific purposes; and (6) best current evidence suggests that several legal and regulatory strategies, along with visible enforcement with education about these laws, can reduce illegal drinking and alcohol-related problems in the District of Columbia.