Is it time for California to increase alcohol taxes?

By any measure, California is a high-tax state, right up there with New York, New Jersey and Massachusetts.

Our personal income and sales tax rates are near the top and despite Proposition 13, California’s iconic property tax rate limit, Californians’ property tax bills are relatively high, thanks to our extremely high housing and commercial real estate values.

There is, however, a notable exception – California’s minimal taxes on alcoholic beverages.

California ranks among the lowest states in taxing distilled spirits (whiskey, vodka, tequila, etc.), wine and beer.

For instance, our distilled spirits tax rate, $3.30 a gallon, stands in sharp contrast to other states, including Washington at $32.52 and Oregon at $21.98. Only a few states are lower, such as Arizona at $3 and Texas at $2.40, according to a compilation by the Tax Foundation.

The Tax Foundation also rates our beer tax, 20 cents a gallon, as 30th highest, and our wine tax, also 20 cents a gallon, as 45th and very close to the bottom.

Gov. Gavin Newsom’s latest budget expects alcohol taxes to generate just $440 million next year, a minuscule share of the $232.4 billion the state expects to collect from taxpayers of all stripes.

Why are the state’s alcohol taxes so low? Credit – or blame – Artie Samish, the legendary lobbyist for the liquor industry, and other interest groups during the pre- and post-World War II era.

Samish was so powerful and effective in protecting his clients’ interests that he even posed with a ventriloquist’s dummy on his lap, one he dubbed “Mr. Legislature,” as he was being interviewed by a writer.

Samish protected the liquor industry by getting the Legislature to enact so-called “fair trade laws” that locked liquor prices into law and also to impose minimal taxes on liquor sales.

Although Samish is long gone, having been convicted on federal charges and died in 1974, the low liquor taxes he lodged into law remain largely intact.

This year, however, a drive is being mounted to raise those taxes, not only to enhance the state’s revenues as it faces deficits but to offset the heavy costs of alcohol-related medical issues, including deaths.

A recent report by the California Department of Public Health found that from 2020-21 an average of 19,335 Californians died each year “due to excessive alcohol use,” with an average 25-plus years of life lost for each premature death. Nearly two-thirds of the deaths resulted from alcohol-enhanced diseases while the remainder were from auto crashes, crimes and other violent acts. The deaths during that period were 20% higher than in the preceding 2018-19 period.

Citing that report and other data, San Rafael-based Alcohol Justice is asking Newsom to double alcohol taxes in his revised 2023-24 budget.

“Alcohol excise taxes in California have not changed since the early 1990s, and are a set figure – meaning they lose value with time,” the organization told Newsom in a letter this week. “With the steady march of inflation, the current CA excise tax rate returns 48 cents on the dollars compared to its original value.

“The (Centers for Disease Control and Prevention) estimates that alcohol-related harms cost the state $14.47 billion annually,” the letter continues. “Currently, California alcohol taxes only recoup 16% of those costs.”

Alcohol Justice makes a strong case, particularly in highlighting the corrosive effects of inflation. However, even without Samish, the state’s liquor industry still enjoys heavy clout in the Capitol and persuading Newsom to take up the cause could be difficult since he owns a vineyard and sells alcohol through his PlumpJack wine shops and restaurants.