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Higher Taxes On Wine May Result From Health-Care Reform

Senate committee proposes higher excise taxes on alcohol; one of several ideas on table

Mitch Frank
Posted: June 9, 2009

President Barack Obama is mounting a full-court press on Congress to pass comprehensive health-care reform this year, which means he's got a lot of negotiating to do with Democrats and Republicans on Capitol Hill. And one of the biggest unanswered questions about reform is how the government will pay for the program, estimated to cost $1.2 trillion over the next decade.

Wine, beer and spirits producers are nervous over the proposal. In May the Senate Finance Committee issued a report on various proposals to pay for reform. One idea was titled "lifestyle tax proposals." It proposed raising federal excise taxes on alcohol, as well as introducing a tax on sodas and other sweetened drinks. The report suggests the tax increases would "promote wellness and healthy choices, and curb activities that increase overall health care costs."

Anti-alcohol groups have been asking for higher taxes on alcohol to pay for health-care costs, including those of alcoholism, for decades. And in recent years, some health advocates have been calling for a tax on sugar- and high-fructose corn syrup-sweetened drinks in hopes of curbing childhood obesity and diabetes. Governor David Patterson of New York proposed such a measure this year, but it quickly perished.

The proposal to raise alcohol excise taxes would hit wine especially hard. The measure calls for taxing wine, beer and spirits at equal rates based on ounces of alcohol in each beverage. Currently beer and wine are taxed at a much lower rate per ounce of alcohol than distilled spirits. Wine has enjoyed the lowest tax rates because the government has tried to support the U.S. wine industry and promote wine as part of a healthy lifestyle.

Wine is now taxed at 21 cents per bottle. Under the proposal that would increase to 70 cents, a 233 percent jump. The tax on beer would rise from 33 cents a six-pack to 81 cents, and the tax on a fifth of a gallon of liquor would jump from $2.14 to $2.54.

Despite their fear of what the tax hikes could do to their bottom line, the wine and spirits industries are being uncharacteristically quiet about the proposal. That's because it's just one of several options on the table. An aide to Senator Max Baucus, a Montana Democrat and chairman of the finance committee, said that Baucus and ranking Republican committee member Charles Grassley of Iowa wanted to lay out all the financing options so committee members could debate them before the group introduced legislation in June.

Other ideas being floated include taxing employees who have particularly generous employer-provided health benefits or taxing the benefits of upper-income workers, as well as cutting Medicare payments and improving efficiencies in the health-care system. American health care is by far the most expensive in the world—health-care spending now consumes more than one of every six dollars of American income, yet quality of care lags behind many countries.

Lobbying groups for the wine, beer, liquor and hospitality industries are meeting with senators behind closed doors, but they're not issuing public statements just yet, afraid of attracting attention. Off the record, members of several groups told Wine Spectator that they're opposed to the idea because it would hurt sales and kill restaurant jobs during a recession. The Wine Institute issued a one-paragraph statement saying the tax would unfairly single out a drink that is "part of a healthy diet and lifestyle for millions of Americans."

All involved parties will be anxiously watching the debate. The finance committee, the Senate health, education, labor and pensions committee and chairmen of three different House committees are all drafting various proposals they hope to introduce this month. Obama hopes to rein in health-care costs and guarantee near-universal coverage for Americans, 46 million of whom have no coverage. After letting Congress take the lead on the specifics for several months, Obama weighed in with a list of priorities this past week, hoping to focus the debate. He wants a bill to sign by August and is gambling a great deal of political capital on the proposal.

With so many details yet to be worked out, the wine industry can only lobby behind the scenes and wait. Health-care reform cannot pass unless someone pays the bill.

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