It’s no secret that West Virginia’s economy, like in many states, was hit hard by the COVID-19 global pandemic. Hit hardest of all were leisure and hospitality businesses such as restaurants and bars, which have seen massive declines in jobs and growth over the past year.
This reality makes it all the more puzzling why state policymakers currently are pushing a much-ballyhooed tax reform package that will hurt vulnerable food and drink businesses at the very time they are struggling to survive. While some are lauding the tax package for its income tax cuts, the reality is that there’s more than initially meets the eye with this legislation.
In an effort to offset the revenue loss of reducing income taxes, the tax overhaul proposes raising taxes on everything from mobile homes to soft drinks. Among the most harmful of these proposed increases is a massive tax increase on alcohol. As currently constructed, the legislation would increase excise taxes on beer by more than 500% and on wine by more than 400%, while simultaneously raising the state-mandated distilled spirits minimum mark-up by more than 20%.
Increasing alcohol taxes might seem like a clever ruse to offset revenue reductions, but state lawmakers would be hard pressed to find a more economically destructive policy in the current environment if they tried. As noted, the COVID-19 pandemic has decimated the food and drinks industry, as many breweries, distilleries and restaurants either have been forced to close permanently or furlough staff.
Stay-at-home orders and limitations on crowd capacity have cratered in-person dining and drinking at watering holes and family restaurants around the country. In response, many state governments have sought to reform outdated laws restricting the ability that bars, stores and alcohol producers have to deliver alcohol. Many food and drinks businesses have credited these reforms with allowing them to survive the pandemic.
Given the precarious and fragile state of these businesses, it makes little sense to foist a massive tax increase upon them. While alcohol taxes might seem more abstract than income taxes to West Virginians, the reality is that alcohol taxes will increase the price of their six-pack or their bottle of whiskey, which at the end of the day can impact their household budget just like other taxes.
These tax increases also could reduce or handicap job growth in the state. In pre-pandemic years, the alcohol industry was producing some of the most manufacturing job gains of any industry in America, and the recent craft alcohol boom has been one of the most promising manufacturing success stories in the country. Local breweries, distilleries and wineries create local jobs and provide much-needed community gathering hubs for neighbors to meet and socialize.
In the middle of the pandemic, everyone seems to yearning for the days when we can meet up with a group of friends at the local bar without a care in the world, but West Virginia’s proposed alcohol tax increases make it more likely that many of these establishments may not be around once COVID-19 finally leaves us.
Luckily, West Virginia lawmakers have another, better option that would both allow them to support local food and drink businesses while at the same time raising revenue for state coffers – and all without raising taxes. Namely, the state could permanently relax long-outdated rules around alcohol delivery. In fact, the state legislature is considering a bill that would extend rules allowing some types of to-go and delivery alcohol beyond the pandemic.
Legalizing more types of to-go and delivery alcohol would help expand market access for businesses such as breweries, distilleries and restaurants. In turn, the modest increase in sales from these new delivery and to-go options would kick off more tax revenue for the state government.
Instead of blindly charging down the road of tax increases, West Virginia policymakers should pursue this option. It’s the only one that can help private businesses, consumers and the government, all at the same time.
• C. Jarrett Dieterle is a resident senior fellow at the R Street Institute and the author of "Give Me Liberty and Give Me a Drink!"