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Commentary

The ABCs of Mississippi’s State-Run Liquor Monopoly


     
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When national Prohibition was repealed in 1933, so that the federal government would be able to offset declining income-tax revenues by reintroducing selective excise taxes on distilled spirits, wine, and beer, the regulation of alcohol sales was left to the individual states. Mississippi finally went "wet" in 1966, choosing to become one of 18 jurisdictions operating state-owned wholesale liquor distribution systems. Other states, like Pennsylvania and Virginia, sell alcoholic beverages directly to consumers through state-run liquor stores, and still others, like California, simply tax liquor sales at retail. No state has seen fit to revisit its initial choice of regulatory regime. It is time to put a stop to Mississippi’s liquor trafficking.

Here are the facts: the Office of Alcoholic Beverage Control (ABC) of the Mississippi State Tax Commission buys about 3,000 brands and package sizes of wine and ardent spirits from vintners and distillers. Can’t find your favorite brand in the package size you prefer? It’s not in the ABC’s "Price Book" or on its monthly "Fine Wine List". The alcoholic beverages purchased by the ABC are then shipped to its 186,000 square-foot warehouse located in South Madison County’s Industrial Park, from which every year 2,000,000 cases of wine and distilled spirits are reshipped to the state’s 1,250 retailers who are licensed to sell alcoholic beverages for either on- or off-premise consumption where local-option laws permit.

State law requires the ABC to mark up the wholesale price by 27.5% over what it pays its suppliers. This markup generates about $32,000,000 in revenue for the state annually, not counting the sales taxes which are also collected on retail liquor sales. Can’t find your favorite brand of whiskey or wine on sale? Liquor retailers, like most small businesses, operate on very thin profit margins. The bulk of those profits are absorbed by the state’s hefty wholesale markup, which places a floor under the prices the retailers are able to charge.

In other words, the State of Mississippi decides what selection of products liquor retailers can offer to their customers and the minimum prices at which they sell to them. Only if the ABC strikes a special deal with a supplier and passes those savings on to licensed retailers in the form of lower wholesale prices will consumers ever see any of those savings. What incentive does the ABC have to strike special deals? None. Since its take is higher the higher is the price it pays to distillers and vintners, it has every reason not to search for bargains.

Those opposed to alcohol consumption on moral grounds doubtlessly applaud the high prices and limited product selection resulting from Mississippi’s state-run liquor monopoly. So do the bootleggers, who thereby serve a larger market than they would otherwise. Indeed, the ostensible justification for adopting a state-run wholesale distribution system in 1933 was that it would wrest control of this function from the bootleg operations that flourished during Prohibition. The surest way of putting moonshiners out of business is to promote competition in legal alcohol sales.

The fact of the matter is that the state’s attempt to restrict access to alcoholic beverages, like all policies designed to regulate private consumption choices, has not worked. According to the National Institute on Alcohol Abuse and Alcoholism, Mississippians drink about the same amount as the typical American: measured in ethanol equivalents, in 1997 the average annual consumption of all alcoholic beverages (beer, wine, and spirits) was 2.10 gallons per capita in Mississippi; it was 2.18 gallons per capita in the U.S. as a whole.

People here drink the same amount of distilled spirits as everyone else (0.62 gallons per capita annually in our state versus 0.63 gallons nationwide), but they make up for it by drinking more beer. Mississippians end up consuming only a third as much wine as other Americans: just one-tenth of an ethanol-equivalent gallon per person per year, compared with three-tenths of a gallon elsewhere. Research published in my award-winning 1997 Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination, suggests that wine consumers are far less likely to be arrested for drunk driving or to engage in other socially irresponsible behaviors associated with alcohol abuse than beer drinkers. Hence, the chief effect of Mississippi’s state-run liquor monopoly, which has no perceptible impact on alcohol consumption overall, is to shift consumption away from wine in favor of beer.

Evidence continues to mount pointing to substantial health benefits from moderate alcohol consumption. Wine drinking, especially, reduces the incidence of coronary disease and promotes longevity. It is true that a small percentage of drinkers abuse alcohol, just as small percentages of tobacco and drug users abuse those substances. Mississippi’s state-run liquor monopoly penalizes the vast majority of responsible adults who enjoy a glass or two of wine with dinner or a cold beer or two at the end of a hot day.

It’s time for Mississippi to move out of the dark ages and end the ABC’s wholesale liquor monopoly and the state’s hidden 27.5% tax on alcoholic beverages. The existing system could easily be replaced by a simple tax on retail sales, which, among other things, would have the virtue of bringing the true cost of state liquor control into the light of day. Wholesale competition would reduce prices, broaden the choices available to consumers, and, if the tax rate were set appropriately, produce more revenue for the state. At the same time, the cost of liquor regulation would be reduced: Mississippi’s taxpayers would no longer need to finance the cost of operating a lavish state liquor warehouse or shoulder the expense of distributing wine and spirits to local retailers. Have a drink and call or write your state representative and state senator. Cheers!


William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.


  New from William F. Shughart II!
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?






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