Under the Influence: Money and Power in Politics

Where Alcohol And Politics Mix, Sin Taxes Leave Bad Taste

(Photo: John Guenther)

California's big alcohol industry fills the glasses of many Americans and the coffers of many politicians. The state's tax rates on alcohol are some of the lowest in the country as a result. Despite a large budget deficit, Gov. Jerry Brown and lawmakers are not looking to change this any time soon.

"They have hordes of lobbyists," California Assembly Member Jim Beall, Jr. (D-24) said, describing the alcohol industry's political army. "One of them called me 'the devil.'" Why? Simply because Beall authored a recent failed bill to impose a fee on alcohol purchases.

Alcohol is big business in the Golden State. California in 2006 was the second-highest beer producer in the U.S. behind Colorado, according to the Beer Institute, a national industry trade group. The state shipped 23 million barrels to wholesalers. And California wholesalers delivered almost 300 million cases annually, says the California Beer and Beverage Distributors.

California is also America's top wine producer, pumping out 90 percent of all U.S. wine, according to the Wine Institute, which represents California winemakers. The retail value of California wine in 2009 was estimated at $17.9 billion.

The beer, wine and liquor industry funneled $3.8 million of that bounty into the 2010 California election cycle, according to the National Institute on Money in State Politics (NIMSP). Of that, more than $200,000 flowed into Jerry Brown's campaign to get back into the governor's chair in Sacramento.

One of the industry's top concerns is taxes. The beer industry in California generated more than $176 million in excise taxes and licensing fees in 2004 and the state's wine industry generated $3.3 billion in state and local taxes in 2008.

The 2009-2010 annual report by the Beer Institute reflects the industry's concern about tax increases in no uncertain terms:

"No single issue has been a greater public policy priority for the BI in recent years than working to prevent an increase in the federal excise tax on beer."

And that threat is clear on the state level as well, with states looking to fill large budget deficits, $28 billion in California alone.

Voters might have the chance come June to vote on whether or not to extend certain taxes for another 5 years to cover part of the deficit. They will not, however, be able to decide on increases of tobacco and alcohol taxes under the proposals presented so far. The current California alcohol excise tax structure has remained the same since 1991.

Beall's recent state assembly bill (AB 1649) sought to impose a fee on "adult beverages" but failed to pass last year. The fee was intended to direct money toward alcohol and drug abuse programs. A state Board of Equalization legislative analysis on that bill examined the history of fee increases in California:

"Before the tax increase, excise taxes on most alcoholic beverages had remained the same since the 1950's, with the exception of an increase in the excise tax on distilled spirits in 1967."

"The industry is very strongly opposed to a fee," said Beall. "A fee would indicate that alcohol has impact on society."

Beall said that many lawmakers in Sacramento receive contributions from the alcohol industry. He admitted he has as well — in the past. But because of his efforts to impose fees on alcohol, they have not been ardent fans of his lately.

According to NIMSP, Beall did receive $1000 from Anheuser-Busch in 2007 and $1600 in 2008 from M.E. Fox & Company, a wholesale beverage distributor.

The state's excise taxes on beer and liquor are below the national average and the tax rate on wine has remained one of the lowest in the country.

"One conclusion is it's the alcohol industry," said Michele Simon, research and policy director at the Marin Institute, a California nonprofit which monitors the alcohol industry and which supported Beall's bill.

"In California the alcohol industry is extremely powerful, especially the wine industry," said Simon. "All over the country the alcohol industry has kept taxes low, even from keeping up with inflation. We couldn't even get [AB 1649] out of committee."

This, despite recent surveys that have demonstrated the popularity of so-called "sin taxes." A joint survey published in October 2010 by the Pew Center and the Public Policy Institute of California showed Californians support by a wide margin an increase of taxes on alcohol and tobacco (74% in favor; 25% against; 1% didn't know). That same survey also showed that the reverse is true for an increase of personal income taxes (22% in favor; 76% against; 2% didn't know).

So far, though, the governor is not seeking to levy any new taxes on alcohol and is confident in his plan for current spending cuts and tax extensions.

"Obviously the governor's office is open to any number of alternatives to the budget he's put forward," said Elizabeth Ashford, spokesperson for Gov. Brown. "For now we are working on extending existing taxes and fees and trying to fill the rest with cuts."

Dan Schnur, director of the Jesse M. Unruh Institute of Politics, said technically it is up to the legislature to introduce new taxes, but practically, if the governor proposed one, it would have great impact.

"Generally, so-called sin taxes tend to enjoy a good level of political support," said Schnur. "On the other hand, they tend to provoke large amounts of opposition."

So, while Brown presses for shared sacrifice, it will, for the most part, not be at the expense of the alcohol industry — or those who drink up.

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