The cost of doing business

October 5, 2013

A walk through a local convenience store got me thinking about the cost of some things versus others.

Noteworthy are these beverage items, all 16 ounces.

A bottle of milk is $1.59, several energy drinks $2.49, orange juice $1.99, Evian water $1.49, and Mike’s Hard Lemonade (8 percent alcohol) $1.79.

Price usually reflects the cost of production, transportation, profit and supply-demand constraints. Based on the shelf space devoted to selling beer one could assume that there is both a huge demand and a matching supply. But it does leave one wondering why alcoholic drinks are cheaper than juice.

Four Loco, which is in essence an alcohol binge in a can (one can is 23.5 ounces, 12 percent alcohol and has the alcohol content of five and a half cans of regular beer) is only $2.59, about the same price as milk on a per ounce basis.

The other noteworthy thing is that the bottled water at the above price is $11.92 per gallon, and it is not the most expensive water either. This is 3.7 times the cost of gasoline, the price of which we complain so much. But that is another story.

It turns out that there is another factor in the cost of alcohol, and that is excise tax. We don’t see this at the register because it is assessed and collected at the manufacturer to distributor exchange. It is built into the price that we see on the shelf. The current Texas state excise tax rates were established in 1984 and have three levels. One is for beer ($0.19 per gallon), one is for wine ($0.20 per gallon) and the third for distilled spirits ($2.40 per gallon).

Two things are apparent: The more alcohol the higher the tax, and, the tax on beer and wine are dirt cheap. These rates were set nearly 30 years ago and have never been changed. The Texas Legislature did not tie it to the inflation rate. As a revenue generator for the state it “grossly underperforms” as the policy wonks say. It also means that there is only 3.5 cents tax on that binge in a can.

Why is Four Loco (or “Joose” or a number of other brands) with its 12 percent alcohol taxed so low? Because it is taxed as beer. Why is that? Look right on the can where it says it is a “malt beverage.” Sure it is. Same for “hard iced tea” and all those fruit flavored alcoholic beverages that don’t look or taste like beer. They are legally using a loophole to be taxed at the beer excise tax rate rather than as a distilled spirit.

What is the point of this? The price we pay for beer and alcohol does not reflect the total cost to society of the problems that alcohol creates. Disregarding the dollar impact on adult alcohol abuse, the cost to the citizens of Texas of underage drinking alone was $6 billion in 2010.

Texans would have to buy 300 billion cans of beer to cover that expense with the excise tax at its current rate.

It is time to rethink this. Maybe plug that loophole, too.

The Hood County Substance Council (HCSAC) is dedicated to the prevention of substance abuse, is a recipient of a Drug Free Communities federal grant, and is affiliated with the United Way of Hood County.

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