Wine might be subject to additional taxation soon. Let's get out in front of posturing politicians and propose ways to raise revenue that cause the least pain.
Here's the background: California is nearly bankrupt. The California legislature finally passed a budget today, but a single Republican Senator -- a wealthy broccoli farmer -- was able to shoot down a 12 cent-per-gallon gas tax. And you can bet there won't be a broccoli tax.
Early versions of the budget included a $1.48 per gallon tax on wine -- up from the current $0.20 -- that would have ended Two Buck Chuck.
Would that be a bad thing? Before you get outraged, think on the issue.
Government policy blesses some products -- corn -- and curses others. Government can enrich agribusiness with subsidies or force wind-energy firms to fend for themselves.
European governments get deeply involved in making choices for the wine industry, favoring certain regions and grapes.
The U.S. government is more removed, but not completely. For example, wines over 14 percent alcohol are taxed at a higher rate. This hasn't prevented ultrapremium wines from rising in alcohol, but it's the reason that most "fighting varietals" have their alcohol reduced below the limit. Is this a bad thing? I would say no, it's not.
So how would you structure wine tax policy to raise revenue while simultaneously improving the wine on Californians' tables?
I don't like hiking the tax on all wine; why should Two Buck Chuck and Screaming Eagle be taxed at the same rate?
My first proposal echoes U.S. policy: Much higher taxes -- maybe 10 times higher -- for wines with alcohol percentages over 14.5 (the higher number reflects the reality of California terroir). Wineries can continue to make ultraripe Zinfandels and Cabs and people can pay $30 for them instead of $27. Such a change would barely affect daily-use wine at all. But it would encourage wineries in the beginning of the premium price range -- $12 or so -- to stay below 14.5.
Second: A "luxury tax" on wines with wholesale prices over $30 a bottle. The state could charge as much as $5 a bottle on the luxury Cabs of Napa and consumers of these products would hardly notice. However, we would suddenly see a lot more $50 retail Cabs, and a lot fewer $75 retail Cabs.
Third: A slightly higher tax rate for wines made from grapes outside the region where the winery is located. This will make producers howl, but it would also create jobs. European countries demand that wine be made in the region where the grapes are grown, and that has led to many tiny wineries instead of one big factory where all the grapes are brought. Each of these tiny wineries needs a certain number of workers.
I'll stop there. But think about it -- how would you use tax policy to influence the wine industry? If it's going to be done, wine lovers should run the debate instead of what usually happens with government wine policy, which is listening to whatever Gallo wants.
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3 comments:
Not bad ideas. I particularly like the excise tax based on alcohol content... though I would suggest a sliding scale that begins at 12.5% alc and moves up from there.
The luxury tax on luxury wines is also a good idea. Purely a guess, but I think the gallonage of luxury wines over $30 wholesale is far less than a 10th of the wine sold in the state, so even at $10, there would be a shortfall. I would speculate that some wineries to gain cachet would raise their prices just to get into that "luxury tax" segment. You know how the fat cats like to brag about how much they spent per bottle.
One that I would like to see. I don't know what Pelosi grows in Oakville, but whatever it is we should tax non-full time resident Oakville growers $1000 a ton for growing it.
The two-tier tax system as currently constructed is absurd. Winemakers often need to print their labels before they finalize their blends. The 14.5 percent level -- plus or minus a couple tenths is a common spot thanks to nature these days. What to do if you don't want to dilute your juice, and you don't want to pick green fruit? They should unify the tax rate and if they want they could make a higher rate kick in at 17 percent (fortified levels).
The idea of a "luxury tax" on wine is ridiculous. For many people a decent glass of wine is an essential part of a healthy meal. Why pick on wine? Why not wild salmon? Or organic spring mix? Bananas anyone?
Taxing non-resident growers would raise the price of fruit and would be a sop to early retirees who buy a hobby farm in Napa.
California collects $4,752 per capita in taxes (source: Tax Foundation preliminary estimate for 2008). The U.S. average is $4,294. Even adjusting for California's higher income level, the tax burden in California is higher than most of the country. And the state still can't balance its budget. Are more taxes really the solution?
In response to the comment that California raises more taxes, I think you really need to normalize those numbers for the level of government services received. Comparing absolute numbers per capita is like apples and oranges.
Having worked with numerous departments of our state govt, I think we actually get pretty good value for our tax dollars these days. The state has worked efficiency to the point were I can argue our state agencies are more efficient than many of my corporate clients.
That said, we would need to look at what services the state provides wine versus what the industry contributes to the coffers. The billions spent to provide cheap water alone, is likely worth more than what is paid, so I think the room to raise taxes is there. However, if they do then the state should provide services to match, in promotion, infrastructure or other improvements. That is what will kick in a nice multiplier for the economy. I think we should talk both sides of the issue, in terms that involve energizing the industry. Taxes in exchange for services that drive jobs, exports, etc.
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