Increase All Taxes on Alcoholic Beverages to $16 per Proof Gallon and Index for Inflation

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Revenues  
  Increase tax 6.1 8.3 8.4 8.5 8.6 8.5 8.6 8.7 8.8 8.9 39.9 83.4
  Increase tax and index for inflation 6.1 8.3 8.7 9.1 9.6 9.8 10.2 10.7 11.3 11.8 41.8 95.6

Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2021.
An offset to reflect reduced income and payroll taxes has been applied to the estimates in this table.

Alcoholic beverages are not taxed uniformly: The alcohol content of beer (including other malt beverages and hard seltzers) and wine is taxed at a lower rate than the alcohol content of distilled spirits. The tax rates are currently governed by temporary provisions in place through December 31, 2020. After those provisions expire, distilled spirits will be taxed at a flat rate of $13.50 per proof gallon. (A proof gallon is a liquid gallon that is 50 percent alcohol by volume.) A tax rate of $13.50 per proof gallon translates to about 21 cents per ounce of pure alcohol. The tax on beer will be equivalent to about 10 cents per ounce of pure alcohol, and the tax on wine that is no more than 14 percent alcohol will be about 6 cents per ounce of pure alcohol. (Wines with high volumes of alcohol and sparkling wines face a higher tax per gallon.) Other factors affect how alcoholic beverages are taxed. Specific provisions of tax law can lower the effective tax rate on small quantities of beer and nonsparkling wine for certain small producers. Additionally, small volumes of beer and wine that are produced for personal or family use are exempt from taxation.

This option consists of two alternatives. The first alternative would standardize the base on which the federal excise tax is levied by using the proof gallon as the measure for all alcoholic beverages. The tax rate would be raised to $16 per proof gallon, or about 25 cents per ounce of pure alcohol. That alternative would also eliminate the provisions of law that lower effective tax rates for small producers, thus making the tax rate equal for all producers and quantities of alcohol. The second alternative would also raise the tax rate to $16 per proof gallon and eliminate the provisions that lower effective tax rates for small producers, but it would adjust, or index, the tax for the effects of inflation each year.