I don’t recommend that advocates of alcohol liberalization spend too much time debating alcohol privatization in Washington state, since if people don’t like Washington’s regulatory framework, there are 47 other better-than-Pennsylvania market designs to choose from. Seems like some folks would have you believe there are only two choices – state monopoly or licensing cartel dystopia. Personally I’m for the California approach where everybody gets to sell everything.
The main lesson to take away from Washington state’s privatization of alcohol is that a plan designed to maximize revenue is going to result in a more inconvenient framework than we’re all hoping for. Charging too much for the licenses will result in higher prices. Add a bunch of new taxes, and some of that will be passed along to consumers. The lesson is that we shouldn’t be making alcohol reform pay for alcohol reform. We can raise the money from elsewhere in the budget.
On balance though, Washington’s partial liberalization of alcohol sales has been basically successful. I fully endorse the veracity of this fact-check by the Commonwealth Foundation:
In 2011, voters in Washington State approved a ballot measure to privatize the state wholesale and retail liquor monopoly, allowing private retailers to sell liquor. Unlike Pennsylvania, wine was already privately sold in Washington. Here are a few facts regarding the impact of privatization.
Myth: Privatization in Washington led to an increase in liquor prices.
Fact: Prices in Washington increased because of new taxes, not privatization. Intending to raise state revenue, the ballot measure created a new 17 percent retail license fee for all spirit sales revenue with an annual retail license renewal fee of $166, plus a new distributor license fee of 10 percent of yearly revenue (which would drop after three years) with a yearly renewal fee of $1,320 per distributor license. And if these taxes and fees do not generate enough revenue for the government in 2013, distributors would have to pay another one-time fee.
These new taxes and fees are being passed on to consumers in the form of higher prices, which only proves the point that businesses don’t pay taxes, only people pay taxes. The liquor privatization bill passed by the Pennsylvania House last month kept liquor taxes unchanged to remain revenue neutral.
Myth: Government revenue declined after Washington privatized its liquor stores.
Fact: Washington’s liquor tax revenue increased after privatization. The state collected more than $185 million in spirit taxes so far this fiscal year (through March 10), an increase of 12 percent over the prior year total when the state government still controlled liquor stores. For the year to date, revenue totals exceeded expectations by nearly 5 percent.
Myth: Since privatization, residents flock to border states for their liquor.
Fact: Liquor sales are up in Washington. According to the Clark County Columbian, “In the first four months of private liquor sales, Washington consumers bought 7.9 percent more booze for total sales of $263 million, up 23 percent from $214 million during the same period last year.” And that trend has continued. Liters of liquor sold through January 2013 are 4 percent higher than at this point in 2012. Despite the higher taxes, consumers are realizing the benefits of competition and convenience.
Myth: Liquor privatization will increase social problems.
Fact: If government liquor monopolies made residents safer, Pennsylvania would be at or near the top in social outcomes. In reality, we rank higher than the national average in binge-drinking and underage drinking. We also rank higher than most bordering states in alcohol-related deaths per capita.
The West Seattle Herald compared crime statistics in two areas before and after privatization. It may be too early to draw conclusions, but they found that alcohol-related crimes were down after privatization.