Taxation of Alcoholic Beverages

Report Outline
Proposed Change in Treasury Regulations
Revenues Yielded by Liquor Taxes
Liquor Tax Rates and Consumption
Bootlegging and Tax Evasion Since 1933
Special Focus

Proposed Change in Treasury Regulations

Total public revenues from alcoholic beverages in 1940 are estimated as $1,171,000,000. Most of this money went to the federal and state governments, which received about $776,000,000 and $355,000,000, respectively. In both cases, the amount was greater than receipts from liquor taxes in any previous year, before or since the eighteenth amendment. It is almost certain, however, that with largely increased revenues needed for defense an attempt will soon be made in Congress to raise the rates of federal liquor taxes to higher levels. Chief deterrent to such a move is the fear that higher rates might actually bring in less money, as a result of decreased consumption of legal liquor and a corresponding increase in bootlegging.

A tacit admission that bootlegging remains a serious problem has recently been made by the Treasury Department, which will hold a public hearing March 18 on a proposal to legalize the sale of whisky, brandy, rum, and gin at 60 proof instead of the minimum of 80 proof now prescribed by departmental regulations. Since the federal tax is based on alcoholic content rather than on the amount of liquor, it would be possible to sell 60 proof whisky for a substantially lower price than the present prices for 80 to 100 proof liquor, and it is hoped that a lower price might discourage bootlegging by more effective competition.

Since July 1, 1940, the federal tax on straight whisky and other distilled spirits has been $3.00 a gallon at 100 proof. This amounts to $.375 for each pint of 100 proof liquor, or $.30 for a pint at 80 proof. If the proof were reduced to 60, the tax would be only $.225 a pint, or 40 per cent less than the present rate for bonded liquor. Federal officials say that bootleg liquor averages about 70 proof, and they believe that if 60 proof whisky were legally available at a competitive price, there would be less incentive to purchase an inferior illegal product.