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Lost in Time: Alcohol Tax Devaluation Could Rescue California’s State System

Alcohol Justice is calling on California Governor Gavin Newsom to bring the state’s alcohol excise tax into line with modern standards to fund the troubled California State University (CSU) system and other educational priorities.

In California, alcohol is taxed at fixed rates per volume produced. This means that the tax has lost 55% of its value due to inflation since it was last raised in 1992. In 2022, the state earned approximately $429 million in excise taxes on alcohol. However, simply adjusting the tax for inflation would raise an additional $523 million.

“Alcohol taxes are widely popular, effective at prevention, and can raise significant state revenue with only modest adjustments,” said Cruz Avila, executive director of Alcohol Justice. He added, “We know that California has made painful decisions in the recent budget round. If there is a choice to be made between raising the alcohol tax or hurting students, the effective choice seems obvious.”

As part of the budget negotiations, Gov. Newsom has proposed deferring nearly $500 million in needed funding for the CSU, as well as abandoning a $365 million expansion of Cal Grant, the main financial aid program run by the state. The system, which includes 23 campuses across the state, is already facing funding shortfalls. In 2023, the legislature passed AB 840, authored by Assemblymember Dawn Addis (D- San Luis Obispo), which aimed to desperately patch budget holes by making it easier for campuses to sell alcohol ads aimed at college students.

“When you pass bills with this kind of myopia, it’s much more likely that you’re going to hurt someone,” explained Michael Scippa, director of public affairs for Alcohol Justice. “About 40% of students at California State University are minors. When alcohol use is encouraged, not only do you increase the odds of collisions, assaults, and injuries, but you also increase the odds that these students will struggle academically. Many colleges also punish underage students they find drinking,” he adds. He also commented, “Imagine making money by advertising alcohol to students and then kicking them out for drinking.” 

Research estimates that about 4,100 college students die annually from alcohol-related injuries, including 2,614 in traffic accidents. In addition, the number of alcohol-related drug deaths has skyrocketed over the past three years: simultaneous use of alcohol and opiates greatly increases the risk of overdose. However, research has long shown that alcohol consumption and related harms decrease as tax rates rise. According to a systematic review of the literature on alcohol taxes, doubling the tax would reduce mortality by an average of 35%. Increasing alcohol taxes to prevent harm has been supported by, among others, the Community Preventive Services Task Force, convened by the CDC and the World Health Organization.

“When we have such a straightforward strategy, with such strong evidence and so much international support, it’s practically negligent not to use it,” said Carson Benowitz-Fredericks, MSPH, director of research at Alcohol Justice. “Proposition 13 has made it exceptionally difficult to establish effective tax policies in California, but fixing the alcohol excise tax should be a no-brainer. Alcohol tax policies are simple, non-punitive, and widely popular. If the governor wanted to burnish his reputation as a no-nonsense, science-driven leader, this would be the place to start.”

Excise duties on alcohol are a “third way”, but the 1991 increase makes it clear that reform is possible. California’s budget woes aren’t going to magically ease next year, and the normalization of the alcohol excise tax would have an impact on future budgets. Former Gov. Jerry Brown had initiatives to raise taxes on education and they were emblematic political achievements of his administration. Alcohol Justice would like to see fixing the alcohol tax and funding of the CSU with the stroke of a pen in the May budget review to be an accomplishment of Governor Newsom’s signature.

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