As New State Committee Meets on Liquor Control, Mackinac Center Statistical Analysis Finds Liquor Prices Higher in Wholesale Control States Like Michigan

Hidden cost of state’s liquor regime estimated to raise prices by up to 6.3 percent, potentially more than doubling Michigan’s state sales tax for liquor

For Immediate Release
Wednesday, Aug. 24, 2011
Contact: Michael D. LaFaive
Director of Fiscal Policy
or
Michael D. Jahr
Vice President for Communications
989-631-0900

MIDLAND — As Gov. Rick Snyder’s Liquor Control Advisory Rules Committee meets today for the first time, a statistical analysis being released by Mackinac Center policy experts indicates that liquor prices are higher in Michigan and in the 17 other states where government acts as a statewide liquor wholesaler. According to the analysts’ calculations, a representative bottle of spirits — a fifth of J&B Scotch — cost almost $1.59 more on average in liquor control states like Michigan than in other states, amounting to a substantial hidden tax on a commodity already subject to large state and federal taxes.

“We found that liquor control states had a statistically significant higher liquor price — an average of 6.3 percent higher,” said Todd Nesbit, Mackinac Center adjunct scholar and co-author of the analysis. “This figure was arrived at after considerable care. We used 10 years of nationwide price data and controlled for the effects on state liquor price of everything from unemployment rates to demographics to employment in the manufacturing and leisure industries.”

“These findings provide a measure of how much state alcohol policies routinely empty the wallet of average consumers,” said Michael LaFaive, co-author of the analysis and director of the Mackinac Center’s Morey Fiscal Policy Initiative. “Michigan liquor consumers may essentially be paying their 6 percent general sales tax twice — in fact, more than twice — without even knowing it. But state and federal liquor taxes are already huge. And honestly, would voters really stand for a sudden doubling of the state’s sales tax if it were proposed in the plain light of day, rather than hidden in an incomprehensible regulatory regime? The new state liquor control advisory committee should consider that as they begin today.”

The 21-member state advisory committee meets for the first time this afternoon to perform a comprehensive review of the state rules and regulations governing alcohol traffic in Michigan. The committee is charged with providing recommendations for reforming Michigan’s liquor control system, which was first implemented following the end of Prohibition in the 1930s.

LaFaive also notes that a 6.3 percent increase would amount to considerable consumer dollars statewide in light of Michiganders’ millions of liquor purchases every year. According to the state Liquor Control Commission’s 2009 Revenue, Sales and Licensing Statistics report, some 6.7 million cases of liquor were sold in Michigan in fiscal 2009 at a cost of more than $940 million.

“Other studies suggest that there is no statistically significant difference in binge drinking and total alcohol-related fatalities between states that do and do not control liquor wholesaling,” added LaFaive. “We don’t appear to be buying anything with these higher prices. That’s why we recommend that the state get out of the liquor wholesale business.”

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