Capitol Alert

Why California’s alcohol taxes are so low

Video: Sacramentans react to proposed cocktail tax

The Cocktails for Healthy Outcomes Act would add a 5 cent tax to raise monies for services for the disabled. But is it fair?
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The Cocktails for Healthy Outcomes Act would add a 5 cent tax to raise monies for services for the disabled. But is it fair?

An end-of-session legislative proposal to add a 5-cent tax to cocktails – everything from happy hour shots of bourbon to pricey craft concoctions – again made clear the Capitol’s sustained aversion to alcohol levies.

The special session measure by Assemblywoman Susan Bonilla, D-Concord, will have to wait until next after it passed in committee but didn’t come to the floor before lawmakers went home for the fall. It would affix a nickel-a-drink tax on drinks sold at bars and restaurants that contain distilled spirits. The additional revenue would go into a special fund to help pay for developmental disability services and alcohol prevention and counseling.

“I think that appealing to the social conscience when it comes to taxing can actually make the tax more successful,” Bonilla said, adding that she is trying to appeal to GOP colleagues while also avoiding taxing small businesses.

The Cocktails for Healthy Outcomes Act would add a 5 cent tax to raise monies for services for the disabled. But is it fair?

Alcohol taxes have historically polled well in California. A Public Policy Institute of California survey in December found 62 percent of likely voters – and 73 percent of parents with children 18 or younger – support increasing state taxes on the purchase of alcoholic beverages. Separate Field Poll surveys determined that support held steady at roughly 80 percent in 2005 and 1995, and was at 73 percent in 1991, the last year state lawmakers boosted the price producers pay per gallon of booze.

California’s inaction has left it with among the nation’s lowest taxes on beer, wine and distilled spirits. Here are a few reasons why that’s the case:

Industry clout

For decades, Big Liquor wielded considerable influence to delay and scuttle alcohol taxes at the Capitol. The late lobbyist Arthur Samish, a legendary Prohibition fighter whose bravado was reflected in a book he co-authored called “The Secret Boss of California,” derived power for his clients in the movie, racetrack and alcohol industries by showering candidates with campaign contributions.

Beverage manufacturers and wine producers remain a force today, spending millions of dollars on lobbying. Meanwhile, members of the Legislature received more than $2 million from alcohol interests between January 2013 and last June. Topping the list were Sen. Isadore Hall, D-Compton, and Assemblyman Adam Gray, D-Merced, the chairs of their houses’ governmental organization committees. Hall raised $100,456 and Gray $78,497, followed by Assembly Speaker Toni Atkins, D-San Diego, $64,900, and Assemblyman Bill Dodd, $62,450. His district includes Napa County.

Regressive tax

Proponents of a higher tax believe it’s needed to help reduce the number of alcohol-related deaths and booze-fueled economic harm to residents and the government. Sen. Jim Beall, D-San Jose, has made several stabs at a tax, from a 30-cent levy on cans and bottles of beer, which he later scaled back to 15 cents, to a 5-cent or 10-cent “fee” on alcohol.

Critics testified the beer tax would harm jobs, particularly for large producers, and also for what was then a fledgling craft brew industry. Later, they forcefully challenged the legality of his suggested majority-vote fee, contending it was really just a tax by another name.

All of the claims have resonated, but none has persisted as much as the contention that any alcohol tax is regressive, meaning it disproportionately affects the poor. Bonilla acknowledged her efforts to avoid the potent argument when she recently discussed her bill, which would only tax liquor at bars and restaurants (not carryout bottles of booze, or any beer or wine). Said Bonilla: “I was really looking for a way to fund disabilities services that wouldn’t involve a regressive tax.”

Republicans object

Former GOP Gov. Arnold Schwarzenegger once proposed using bolstered alcohol taxes to help close large state budget deficits. Today, after his party has risen above the one-third threshold needed to hold the line on tax hikes, Republican leaders have repeatedly stressed their unwillingness to acquiesce on taxes.

“The fact that the bill author would even consider raising taxes to fund critical government programs shows a lack of foresight and fortitude during the budget process,” said Kristin Olsen, the Assembly Republican leader.

Senate GOP Leader Jean Fuller agreed, saying it’s unfortunate Democrats didn’t prioritize funding for the developmentally disabled community when the state had billions of dollars in unanticipated revenues. “While it is admirable that they are looking for ways to fund services for the most vulnerable members of our society, we don’t know if this bill will raise or will provide a sufficient and dependable stream of revenue,” Fuller said.

Uncertain gains

In limiting the alcohol tax to spirits and cocktails sold at bars and restaurants, Bonilla is making it more difficult to track – and thus enforce. No government entity monitors each drink sale. The state Board of Equalization applies alcohol excise taxes by the gallon at the point of first sale. By cutting out off-site liquor, the proposal also leaves on the table potentially hundreds of millions of dollars advocates want.

A nickel-a-drink proposal would raise $253 million annually, according to a tax calculator offered by Alcohol Justice, the industry watchdog group based in Marin County. But only half of that would be collected by an on-site tax, estimates Bruce Lee Livingston, the group’s executive director. Meanwhile, he said a 3-cent tax on 12 ounces of beer, 5 ounces of wine and 1.5 ounces of spirits would generate about $485 million, $85 million more than Bonilla said is needed for disabilities. “We do, however, support the bill, both for raising the price of an under-taxed, harmful product and for raising revenue for a good cause – it’s just that a straight-up excise tax increase would be more efficient,” Livingston said.

Say what?

“They are calling it a cocktail tax to make it a little more cute and a little more palatable for the public … I think the wording is a little suspect at best because there is no way they are going to be able to tax Californians per cocktail … There is no way in hell they are going to be able to track that.” – Jason Boggs, bar owner

“My bartender friends are going to hate me, but I think it’s probably a good thing because it’s only 5 cents … If you want to have luxuries in your city, we have to tax something. And if you want to have luxuries in life that could be damaging to your life, well, I guess a 5-cent tax wouldn’t be so bad.” – Kris Anaya, musician

Christopher Cadelago: 916-326-5538, @ccadelago; The Bee’s Chris Macias contributed to this report.