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Beer and wine wholesaler analysis shows spirits excise tax hike under McDonnell ABC plan

Rosalind Helderman

An analysis of Gov. Bob McDonnell's plan to privatize the state's liquor monopoly conducted by a former chairman of the University of Richmond's economics department on behalf of Virginia beer and wine wholesalers shows the plan will raise excise taxes for current liquor consumers by 42.5 percent.

The analysis also indicates that, as a result, liquor prices will rise by at least 16.5 percent. And it argues that imposing a gallonage excise tax -- as opposed to the percent of purchase excise tax now to purchase price -- is regressive, raising taxes more for those who buy cheap liquor than for those who buy the expensive stuff.

McDonnell's spokesman Tucker Martin said the governor's staff would review the analysis but accused the beer and wine wholesalers, who funded the analysis, of opposing privatization because it would mean sharing shelf space with liquor at grocery and convenience stores that now sell only beer and wine.

Associate Professor of Economics emeritus Robert W. Cook said he took the assumptions included by the governor's staff in his proposal at face value. For instance, he did not question McDonnell's assertion that the number of gallons of liquor sold in Virginia will rise 11 percent in a newly privatized system as Virginians who now buy in D.C. and Maryland choose to purchase at more convenient retail outlets in Virginia.

But Cook said a close examination of McDonnell's own numbers shows a dramatic increase for Virginians in the excise tax imposed on spirits. Under the government's monopoly, the state takes in $111 million in excise taxes. McDonnell has proposed a new $17.50 per gallon excise tax, which he estimates will bring in $175 million in fiscal 2011.

He said the governor's revenue figures also assume that prices will rise 16.48 percent in a private system.

"This is arithmetic," Cook said. "I share the ideology. This is simply an analysis of what he said."

McDonnell has argued that, while the spirits excise tax might rise under his proposal, the plan does not include a net tax increase because government would, on the whole, take in less revenue in the private system than under the monopoly. That would happen as it hands over the $120 million the state now makes in liquor profits to private industry.

That point of view was embraced Monday by Grover Norquist, president of Americans for Tax Reform, and today by Americans for Prosperity, which also generally opposes tax increases.

Cook also argued that a per-gallon excise tax would mean that cheap liquor and expensive spirits are taxed equivalently, thus shifting the liquor tax burden onto less affluent residents who buy inexpensive booze.

Excise tax revenue from liquor purchased in Loudoun County, which had the state's highest average household income in 2008, would rise by 34.24 percent, his analysis shows. Excise tax revenue from booze bought in Buchanan County, with the state's lowest household income, would rise 60.61 percent.

What might be the most interesting thing about today's analysis, unveiled for reporters at the Richmond offices of the Virginia Beer Wholesalers Association, is that it's a sign that beer and wine sellers have decided to step up their public opposition to the governor's plan.

Both groups were on record opposing the proposal. But today's briefing suggested that legislators weighing McDonnell's plan are likely to be lobbied in opposite directions by different parts of the alcohol industry, with spirits and big retailers urging "yes" votes, while wine and beer wholesalers push for "nos."

From the governor's office, Martin told us, "it's not lost on anyone that the motivation of the wholesalers is simple economic self-preservation. They don't want competition, and they don't want to lose shelf space. From that narrow position of self-interest all their comments and studies flow."

By Rosalind Helderman  | September 28, 2010; 3:43 PM ET
Categories:  Liquor privatization, Robert F. McDonnell, Rosalind Helderman  
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Let me guess, private industry knows better, unless you're a Republican.

Posted by: mikefromArlington | September 28, 2010 4:15 PM | Report abuse

So even though I'm paying more for spirits, I'm supposed to believe the voodoo logic that my taxes have gone down, simply because the government has raised less revenue?

I can't believe McDonnell found a way to raise taxes and lower revenues at the same time. All the pain of a tax increase, with none of the benefit!

Posted by: KBfromNC | September 29, 2010 8:30 AM | Report abuse

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