Liquor Taxes and the State

This story from the Seattle Times about the strong possibility of liquor prices going up is a typical example of what happens when the state gets involved in taxing businesses. Some may think it is necessary to tax businesses in order to fund government programs. But one has to consider the unintended consequences that result in doing so.

For those of you who don’t know, Washington State had a monopoly on the liquor industry until 2012, when Initiative 1083 was passed allowing for private businesses to sell liquor. After the repeal of Prohibition in 1934, it had been sold only in government-run stores via the Liquor Control Board.

However, the initiative did not change much for the average consumer, thanks to a variety of taxes that result in a much higher price. As someone living in Washington, I have seen myself the initial price of a bottle of liquor compared to the final price. It adds an enormous amount to the final cost.

Additionally, because of the way the law is enacted, the state still has a say over how it is sold and taxed.

Thus, businesses are now fighting over changing the law so that their specific type of business will not get taxed as much as others. In other words, to use the law to give them a competitive advantage.

There is no reason for the state to be involved in the liquor industry in any way. Nor should it be using alcohol consumption as an excuse to tax and fund the government. I’ve never understood the concept of a “sin tax” that raises the price of products like tobacco and alcohol. This implies that smoking and drinking are both vices that need to be discouraged via taxes. I find it ironic that this comes from the same people who are apt to label others “judgmental” for expressing any kind of moral conviction on other matters.

There should also be no special tax placed specifically on liquor, or any other product. If there has to be a sales tax, it must apply to all goods sold at the same rate. But this is not the way it works. Certain goods are taxed, while others are not. This amounts to legalized favoritism.

Of course, it brings in more revenue for the state. But it also has unforeseen consequences for businesses bordering states like Oregon, which has no sales tax. Therefore, businesses in Washington border cities suffer as residents go across state lines to purchase tax free liquor and other goods.

Like so many conflicts, this one currently going on would not exist if the state was removed from the equation, leaving private businesses to compete solely on the price and quality of their goods and services sold. Instead, because of the system in place, they seek to use government to give them an edge and special favors, knowing if they don’t their competitors will.

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