Thursday, February 19, 2009

HB 2461

The Oregon Brewer's Guild is opposed, and frankly, so am I.

Not only would this be the single largest beer tax increase in the history of the world (increasing the excise tax on a barrel from 3 bucks to over 50 bucks, and the price of a pint by a buck and a half), but it would probably hurt an industry that has already done so much for the State's economy.

As I'm writing this, I have no idea what the Oregon demand curve for beer looks like.  But let's assume that it exhibits unit elasticity.  When the cost of a pint of beer increases by $1.50 (about 40%, assuming a typical pint costs about 4 bucks), the demand for pints will correspondingly drop by, you guessed it, 40 percent.  And if 40 percent of the Oregon population are beer drinkers, this is real revenue LOSS, not gain.  

Now imagine a relatively elastic demand curve, and the revenues decline further.  

Without seeing Ben Cannon's (the sponsor of the bill) analysis, I can only speculate, but it seems that they're hoping that consumption will not be curtailed too much, so that tax receipts can come in big.  However, in order for the demand to be inelastic (what Ben's assuming), there need to be no close substitutes for beer.  I'm thinking of wine (which I'm assuming Ben drinks a lot of), spirits, beer in Washington, beer in California, and the most important of all, homebrewing.  

Is prevention for alcohol and substance abuse important (to which the tax receipts will go)?  Hell yes.  But this tax increase (including its timing and magnitude) is really troubling me.  I'd rather have income taxes increase a little bit (the principle here being that everyone benefits from reducing the number of drunk drug addicts), than have responsible beer drinkers, and the craft beer industry, fit the bill.

1 comment:

  1. Mr. Sherman,

    Love the blog brother!! Dr. Duff sent me a link to it. This new beer tax sounds like an awful idea. But with a steady supply of homebrew, I guess the $1.50 a pint increase won't hurt ya too much. I look forward to your updates!