Your Margarita Could Get A Lot Cheaper, Thanks To A Proposed Liquor Tax Bill

Tired of paying $14 for just one lousy cocktail?

Then you might like the bill that Representatives Todd Young (R-Ind.) and John Yarmuth (D-Ken.) introduced to the House this week.

In the Distillery Innovation and Excise Tax Reform Act of 2015, they propose to slash federal taxes on hard liquor by up to 80 percent, which could translate into lower prices at bars and liquor stores.

Specifically, their bill would cut the federal excise tax on distilled spirits, which has stood at $13.50 per proof gallon since 1991, to $2.70 per proof gallon on the first 100,000 gallons a distillery produces and $9 for each proof gallon thereafter. A "proof gallon" is one gallon of 100-proof liquor, so the federal government currently levies a tax of about $2.14 on each 750 mL bottle, or "fifth" of standard 80-proof liquor, such as vodka, whiskey or rum. Under their proposal, that number would drop to about $1.40 for liquor sold by large distilleries and 43 cents for liquor sold by any of the approximately 1,000 craft distillers in the country. Liquor from medium-sized distillers -- your Buffalo Traces, say -- would see tax reductions somewhere in between those two figures.

The Distilled Spirits Council of the United States (DISCUS), the industry's chief lobbying group, issued a strong statement in support of the bill, in which DISCUS CEO Peter Cressy said that "distillers of all sizes are united behind this important hospitality industry legislation."

Of course, DISCUS always argues that spirits taxes are too high. But groups without a financial stake in the liquor industry have tended to disagree. The Center for Science in the Public Interest, for example, argues that because inflation has chipped away at the real value of the alcohol excise tax for two decades, these taxes now stand far below the level that would be optimal for Americans' health. And the Congressional Budget Office put out a report in 2013 that showed that raising liquor taxes to $16 per proof gallon could generate over $60 billion in tax revenue by 2023.

Because the bill was only introduced this week, no one has yet conducted a full report of its economic effects. And a tax cut like this could shift supply and demand in complicated ways. But Americans purchase about 500 million gallons of hard liquor a year -- so basic arithmetic suggests that reducing the federal excise tax by the amount Young and Yarmuth are proposing could cut annual federal tax receipts by more than $2 billion. So this national happy hour could lead to an extremely costly hangover.

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