Tennessee’s alcohol taxes fall heaviest on the poor
The evidence on sin taxes is quite clear. Increased prices on ‘sinful’ products do not result in a healthier state, just a poorer one.
Tennessee might call itself the Volunteer State, but there is nothing voluntary about its unreasonably high alcohol taxes. This is especially true for poor residents, who tend to disproportionately pay regressive “sin” taxes such as this.
Unsurprisingly, for the home of a distinctive drinking whiskey, our liquor taxes are fairly reasonable. However, our wine and beer taxes are some of the highest in the nation. Tennessee, in fact, has the highest beer excise tax rate in the nation at $1.29 per gallon. Kentucky, with the nation’s fourth-highest tax rate, is only 85 cents. Georgia, Mississippi, Alabama and Arkansas all set their beer taxes at less than 50 cents. This is not to mention neighboring Missouri’s $.06 tax, which is one of the lowest beer taxes in the U.S.
Alcohol taxes, a sin tax levied in the name of discouraging consumption of goods or services thought undesirable by meddlesome policymakers, often fall heaviest on the poor. This is because the poor tend to spend a larger proportion of their income on products considered “sinful,” including alcohol.
The evidence on sin taxes is quite clear. Increased prices on “sinful” products do not result in a healthier population, just a poorer one. People often demand these goods all the same even if the price goes up.
High alcohol taxes are simply bad for tourism in Tennessee, which further affects the poor and hurts the economy.
For example, in planning an academic economic conference in the Nashville area — no booze fest for sure — the sticker shock of alcohol prices for a reception was hard to justify. Thus, discouraged event planners are left to scale back on “sinful” expenses or take their events to other states. The cost of this lost activity tends to fall heaviest on entry-level jobs held by our poorest residents. This effect is particularly a concern while tourist-driven cities are trying to recover from the pandemic.
There is a dirty — one might even say sinful — reason these taxes remain in place despite the failure of regressive taxes to improve public health. The poor are less likely to be politically organized or even vote, making them an easy target for policymakers hesitant to put through broader taxes to pay for their spending. The fact that people continue to purchase “sinful” products despite the taxes levied makes it all the more attractive to policymakers. It makes for easier revenue generation.
Tennesseans and potential visitors to the state deserve the right to enjoy a cold beer without being gouged by the taxman. This is especially true for our hardworking poor.
Macy Scheck is a research analyst with the Political Economy Research Institute. Daniel J. Smith is the director of the Political Economy Research Institute at Middle Tennessee State University and an associate professor of economics at the Jones College of Business.