(For those who aren't Utahns, the way bars work here is this: Bars in Utah are "private clubs" that are not open to non-members. You can enter a bar if and only if you are a member or you're there with a member. You can easily become a member for a small fee --- you just sign a card at the door.)
Some of the talk you hear in support of private club requirement is bad economics, and I thought I'd point that out.
Alcohol consumption certainly has negative externalities associated with it. Go read Paying the Tab by economist Philip J. Cook for more on this. One solution to the problem of externalities is to tax the activity that leads to the externality. Higher alcohol taxes would probably mean lower consumption, less drunk driving, and lower incidence of alcohol-related illness.
Without doing a lot of statistical analysis, it's hard to say exactly what the "right" alcohol tax should be, but I think it's safe to say that economists would agree that alcohol should be subject to taxes that are higher than other goods.
The private-club requirement isn't a tax on alcohol, it's a tax on entering a bar. So maybe that's the same as a tax on alcohol?
Some in the legislature seem to think so --- Senate President-elect Michael Waddoups said in the SLTrib "Unless we find something better that protects our children and protects us from drunken drivers, we want no change in private club memberships. Someday we may find a better solution, but it hasn't even been suggested at this point."
What the Legislature is doing here is taxing a complement to alcohol consumption, rather than taxing consumption itself. "Entering a bar" and "drinking" usually go together, so economists call them complements.
The problem with this approach is that it's the "drinking" part, not the "entering a bar" part, that causes harm. So a more effective way to reduce drunk driving would be to tax alcohol consumption directly.
This approach of "tax a complement to the harmful activity" is a pretty common thing for governments to do when the tax itself is unpopular. This is what the Congress did when it implemented the CAFE (Corporate Average Fuel Economy) standards on the auto industry in the 1970s. Taxing gasoline would be unpopular, so instead the Congress imposed a hidden tax on a complement. By forcing auto firms to raise average fuel economy of the vehicles they sell, Congress made it more expensive to own a gas guzzler --- this is a tax on a complement to fuel consumption.
There are (at least) two problems with the CAFE standards: (1) Driving a Hummer 1 mile to work uses less gasoline than driving a Honda Civic 50 miles to work. That is, the harmful activity is "burning gasoline" not "owning a Hummer". The CAFE standards didn't do anything to deter driving your Civic a lot, but that's an activity that causes a lot of harm. (2) The CAFE rules had an exception for light trucks, and so this meant SUVs were subject to different rules.
My suggestion for the Legislature on reforming alcohol laws? Raise the tax on alcohol itself, and get rid of the other rules.
Information on Utah's comparative alcohol taxes is available from The Tax Foundation. Turns out that Washington, Oregon, Alabama, Virginia, Alaska, Michigan, Iowa, North Carolina all have higher "Spirit Taxes" than Utah. Utah's "Beer Tax" trails Alaska, Alabama, Hawaii, South Carolina, North Carolina, Florida, Georgia, and Mississippi.
Posts
4 comments:
Scott,
The requirement to pay membership for a private club in Utah does not reduce alcohol consumption. I believe it increases it. Once you have to pay to get in, you feel you must stay to make the price worth it and you are more likely to consume more. In addition, since you've paid for a membership, you are more likely to return in order to get your money's worth.
A tax on consumption would be a much more direct tax on the negative factors of alcohol.
At the time you order your second drink, the membership is a sunk cost. But people certainly fall victim to the sunk cost fallacy all the time, so this could be right. I don't know of any data on it.
I'm not sold on membership payment as a complementary good relative to public alcohol consumption. Rather, the membership, which in Utah can be paid annually or on a short term basis, is an admission fee. When hosting friends from out state I often liken Utah's membership fee to the "cover charge" that you pay to enter bars, night clubs, and dance halls in other major US cities.
Without a robust data set, I'm inclined to agree that membership fees, cover charges, etc. do not create strong incentives to over-consume. It is likely that the effect of an admission fee on consumption is likely overwhelmed by other incentives e.g. the desire to enhance the quality of one's dance moves, mustering additional courage to talk to another patron, and a multitude of other social factors present within the establishment.
Just for the sake of argument, I think that a certain class of alcohol supplier should be exempt from higher alcohol taxes: the home brewer. (I can imagine the legislature raising taxes on businesses that supply home brewers while they bump the tax on commercially-brewed beer, or requiring a tax stamp analogous to the one for marijuana). But, the home brewer has a "tax" in the form of an increased cost of effort to create the supply, so no external tax is needed. Maybe that's one reason why the Utah laws that make home brewing illegal are basically never enforced.
Post a Comment