Taxing Liquor in Michigan

Aug 29, 2011

There are taxes, and then there are taxes. Some are straightforward. If I spend ten dollars at the hardware store this afternoon, I know I’ll pay sixty cents in sales taxes.

But other taxes are hidden, and may be higher than we suspect. The Mackinac Center for Public Policy is an independent, non-partisan think tank with a strong fiscally libertarian bias.

Last week, it released a statistical analysis of liquor prices. The center found they are higher in states like Michigan where the state government acts as the statewide wholesale distributor.

How much higher? A little over six percent. They took as their example a fifth of a particular common brand of Scotch. They found that it costs, on average, a dollar fifty-nine more a bottle in the seventeen states like Michigan where government is the wholesaler. The Mackinac Center said this amounted to, “a substantial hidden tax on a commodity already subject to large state and federal taxes.” The implication is that this is bad.

However, I’m not so sure. I suppose it would bother me more if it were a tax on baby formula, or if the tax left liquor costing twenty percent more than in Illinois, for example. But nobody forces anybody to buy a bottle of Scotch.

Phil Power, founder of the non-partisan Center for Michigan, thinks it may be time to reform the system, and worries that the difference in prices may encourage illegal liquor smuggling.

Well, I’m not too worried about smuggling. I don’t know many people who would drive to Illinois to save a dollar and a half on a bottle of Scotch. The Mackinac Center wants to solve this by getting the state out of the wholesale liquor business.

But can the state afford to lose the one hundred and fifty million dollars in annual revenue Michigan gets from being our liquor wholesale dealer? Almost certainly not.

When you look at what goes in to setting liquor control prices, you’ll see that in the fourteen years they’ve been doing it, the Michigan Liquor Control Commission has erected an apparatus that would make Rube Goldberg proud. Rationally, it would make more sense to start again. 

But politics are seldom rational, and these days, politicians are unwilling to raise any taxes even if that means cutting other taxes and leaving people with more money. There may be some hope. 

Andrew Deloney, the liquor commission’s new chair, told Power that he thinks the entire process of getting liquor licenses needs to be “reformed and reinvented.”  He added that the governor wanted the commission to look at how things are done in other states.

Snyder, he said wants to know who is doing a better job of making liquor available to the legitimate consumer for a fair price.

This all makes sense. In fact, when you look at our entire jury-rigged system, it’s hard not to conclude that we ought to go back to the drawing board and come up with entirely new ways in which the state assesses taxes and fees.

Some clearly should be lowered. But others may need to be raised, and we need to be open to that possibility.

Government needs grownups. When it comes to anything having to do with money, we may need them most of all.