Mayor Johnson's proposed alcohol tax hike likely dead

at chicagobusiness.com, Justin Laurence & Ally Marotti wrote:Consensus is growing in the Chicago City Council that a more than 34% hike in the city’s alcohol tax included in Mayor Brandon Johnson’s proposed 2025 budget is all but dead amid pushback from Chicago’s hospitality industry.

The proposal would raise the tax on beer 10 cents to $0.39 per gallon and the tax on spirits almost $1 to $3.62 per gallon. Other alcoholic beverages would also see taxes rise. At the liquor store, that would look like a 3-cent increase on a bottle of wine, a 6-cent increase on a six-pack of beer and a 19-cent increase on a bottle of liquor, according to the mayor’s office. The increase would result in an estimated $10.6 million in annual revenue.

But Johnson’s $17.3 billion budget plan has already received significant pushback, and it appears there are not 26 votes to keep the liquor tax in the final budget, which must be approved by Dec. 31. The City Council already unanimously rejected a proposed $300 million property tax hike, and Johnson said yesterday he’s agreed to reduce the property tax hike to at least $150 million.

"I'm confident that it will be taken out,” said Ald. Matt O’Shea, 19th. O’Shea represents a border ward where there is concern the tax would push customers to purchase alcohol in the suburbs.

"It's apparent the administration is talking to members of City Council who have been hearing from small business owners in their communities and the Restaurant Association, Retail Merchants Association, the hospitality industry, that this would be a real problem,” O’Shea said.

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Johnson's proposed alcohol tax hike likely dead amid pushback from Chicago's hospitality industry

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A couple interesting things: If you buy a 1.75L bottle of the cheapest vodka at Lakeview Binny's (Crown Russe, $8.99 with Binnys card) there's $6.35 of state and federal tax. You'll also pay $2.40 of city and county tax but that's tacked on to your bill along with $1.02 of sales tax. So, out of a grand total of $12.41 there's $2.64 to make vodka.

Suppose you are accustomed to the finer things in life. A smaller 750ml bottle of Harlan D. Wheatley's CLIX vodka, distilled 159 times, has $2.78 of state and federal tax along with $1.04 of city and county tax. The $279.99 price does command $28.70 in sales tax, and the total bill of $309.73 includes $32.52 of tax, leaving $277.21 for the vodka. Heck, that's less than $2 per distilling!

The upshot of all this is that the current liquor tax scheme, being a flat tax per gallon or proof gallon, is regressive. Poor folks drinking rotgut pay proportionally far more tax than rich folks sipping the finest.

Now, on to the tax increase. At 94¢ per gallon, a 1.5oz shot of liquor's tax will increase just over a penny. Even less for a can of beer with a 10¢/gallon increase. And that's true whether it's PBR or Remy Martin Louis XIII. I truly doubt that a penny per drink will make much difference in where customers decide to imbibe.

A fairer scheme that could generate much more revenue would be a proportional or, better yet, a progressive tax that would hit less-price-sensitive drinkers much harder. One way to do that would be to impose a much higher "luxury" surtax, say $3 per gallon on beer selling for more than $8/12oz, $20/gallon on wine selling for more than $75/bottle, and $100/gallon on liquors retailing for more than $15 per drink. Sound like a lot? It's less than the sales tax. Such a scheme is also anti-inflationary as it encourages sellers to keep prices below the surtax line, or substitute less expensive goods.

The problem for any Chicago sales tax is that it strongly punishes businesses that are near the city boundary lines.

tjr wrote:A fairer scheme that could generate much more revenue would be a proportional or, better yet, a progressive tax that would hit less-price-sensitive drinkers much harder.

Good point about how regressive the tax on volume as opposed to cost ends up being. It's obvious now that you mention it, but I hadn't really thought about it and just accepted the general premise of alcohol being heavily taxed.