Anchorage looks at taxing alcohol sales

In late 2017, drinkers around the country raised a glass to the Tax Cuts and Jobs Act, which temporarily cut federal taxes on alcohol by a whopping 16 percent. Now, as 2018 draws to a close, there’s talk of increasing local alcohol taxes in at least one community in Alaska. Anchorage Mayor Ethan Berkowitz wants to impose a 5 percent tax on alcohol sales to raise revenue for homelessness and substance abuse services.

The United States has a history of taxing products, like alcohol and tobacco, that can be harmful to individuals and costly to society (aka sin taxes). The nation was in its infancy when Treasury Secretary Alexander Hamilton first singled alcohol out for taxation: “The consumption of ardent spirits particularly, no doubt very much on account of their cheapness, is carried to an extreme …,” he wrote. “Should the increase of duties tend to a decrease of the consumption of those articles, the effect would be, in every respect, desirable” (hat tip to Politico).

Do higher taxes on alcohol curb consumption?

Public health experts and advocacy groups tend to side with Hamilton. The World Health Organization finds increasing alcohol taxes to be “one of the most effective strategies for reducing consumption of alcohol at the population level.” Simply put: “When taxes go up, drinking goes down.” A 2018 study published in the Journal of Studies on Alcohol and Drugs found that higher taxes on alcohol “decrease the consequences of excessive consumption and reduce the need for health care services.”

Not everyone agrees. According to the Tax Foundation, “economists around the world have found that the consumption of alcohol is relatively inelastic, which means consumption does not change much as the price changes.” A 2017 study by the Tax Policy Center found that “increasing alcohol taxes does not appear to reduce fatal crashes related to drunk driving.”

What these taxes can do is raise revenue, and that money can be dedicated to offsetting some of the societal costs of alcohol consumption.

Alcohol in Anchorage

Alcohol abuse cost Alaska approximately $1.8 billion in 2015, according to a study by the McDowell Group. Overall, the state saw more traffic collisions, lower productivity, and more health care problems because of alcohol consumption. It put strains on the state’s criminal justice and protective services, as well as public assistance and social services.

If Mayor Berkowitz gets his wish, voters in Anchorage will be asked to approve a 5 percent retail sales tax on alcohol in April 2019. For that to happen, at least eight members of the Anchorage Assembly must agree to place the proposed tax on the ballot. If approved, it would likely take effect January 1, 2020. Revenue would fund capital improvements, such as a treatment center as well as services for alcohol abusers and the homeless.

An Assembly memo explains: “This retail sales tax on alcoholic beverages will address the social and economic costs caused by alcohol to the people of Anchorage.” Although there are state-level excise taxes on alcohol, Anchorage and other localities see little to none of that revenue.

There’s no state sales tax in Alaska, but local governments can levy local sales taxes on some or all sales. More than 100 jurisdictions in the state do. If ultimately adopted, Anchorage's tax on alcohol sales wouldn’t be the first of its kind; local alcohol sales tax rates in the state range from 3 to 12 percent. 

Anchorage doesn’t have a general local sales tax, but it does tax retail sales of marijuana. The proposed tax on alcoholic beverages would be in step with that.

Learn more about sales tax in Alaska.