Abolish the State Liquor System and Advance Societal Goals

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Greg wants to know what we should be fighting for in the alcohol reform bill, and offers a few ideas:

Tax liquor sales so the state is making a similar amount of money.

Find a way to make sure the system isn’t taken over by chains and that small business owners can stay competitive.

Ensure that “liquor store privatization” isn’t code for breaking up the union that protects workers at these stores.

I think Greg and I are both accepting Mike Turzai’s premise here:

“Should Pennsylvania be in the business of selling alcohol? Is this a core function of government? I don’t think so,” Turzai said in a statement. “The current system is antiquated and out-of-touch. It’s time to end the statewide monopoly and give consumers better selection and more convenience.”

This is exactly right. And the reason liberals should get behind this is that we don’t need public employees selling booze. The market will do that on its own. We need public employees providing crucial public services that the market doesn’t provide on its own, or does not provide enough of.

Our ability to pay government employees is constrained by political attitudes about the appropriate level of taxation. We need to make the best use of that money that we can. If the surplus created by regulating alcohol supply accrues to the liquor store employees instead of the taxpayers, we have less money for other more useful public services.

But, it really does matter how you set this thing up. Limiting the supply of alcohol creates a surplus. Who gets this surplus? I think it should be the taxpayers.

So I really don’t like the idea of limiting competition by creating a new side market for liquor store licenses. The appropriate value for these licenses is $0.

Turzai would turn them into assets, and they will become very expensive just like liquor licenses for restaurants and bars are way too expensive. Rather than letting store owners sell the licenses to a new buyer and pocket the profit, there should be a new auction every few years, with the proceeds going to the taxpayers. If you’re trying to sell us on competition, then you have to design a competitive market.

I also want to say that a liberal blogger shouldn’t have to be making this case. There is a very loud, supposedly “libertarian” think-tank in Harrisburg…

What else should we want? Here’s a summary of my wishlist from Patch.

1. Supermarket sales

I don’t think there’s any reason to worry that the market will be unfriendly to small businesses. It’s true that grocery stores will be able to offer a better deal on the most popular products, but they won’t be able to carry everything, so there’ll be a vibrant market for niche and boutique products. That’s why I don’t see a reason that we need to bother with limiting the number of liquor licenses. The market will settle into an equilibrium where most people buy wine and liquor in supermarkets, and people who are looking for specialty items will go to smaller boutique stores.

2. Uncap Liquor Licenses

This is a heavy lift, and I’m not sure it’s even politically possible, but $250K is way too expensive for a liquor license for a bar or restaurant. “Gastropubs” are popular right now, and the places that have that sort of vibe, like the Bookstore, Black and Blue, and the Mint, are really popular in the LV. But the cap on liquor licenses means you can’t get more of those kinds of places unless other places close. It limits competition and it’s needlessly slowing the redevelopment of the LV’s downtowns.

3. Market Prices

PA’s current tax system makes low-end alcohol too cheap. The gallonage tax fixes this.

4. Where vs. How Much

It doesn’t matter who sells booze. You’re constrained by money, not by the ability to get to places that sell alcohol. So demand-side regulations (taxes) make more sense. The whole premise behind regulating alcohol in the first place is that we want to hold down consumption for public health reasons. The idea that public safety requires us to have an uncompetitive annoying system for buying alcohol is seriously mistaken. We need to move away from this idea that the government should be controlling who you can buy alcohol from, rather than how much alcohol you can buy.

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18 Responses to Abolish the State Liquor System and Advance Societal Goals

  1. phillydem says:

    Because I keep hearing this argument about better selection, I'm curious what alcoholic beverages (besides beer) that you want to purchase aren't currently available in the state stores? Having lived in both NoVA and right across the bridge from NJ, I personally never noticed a big difference in inventory selections.

    Frankly I have to laugh at this notion that somehow not employing state workers in state stores is going to translate into hiring more state employees for social services and/or better or expanded social services.

    If you want to know why the license fee is at 250k and isn't likely to be lowered, here's the math from Sturla's blog: http://policycommonwealthcommonsense.blogspot.com

    The state will need to replace that $500M in ANNUAL NET revenue the state stores return to the general fund. In 2010, state stores and the excise tax brought in 1.8% of state revenue. For comparison, the corporate income tax brought in 1.9% of state revenue. That would indicate the entire newly privitized liquor business would need to bring in as much tax revenue as ALL other businesses combined currently pay in corporate income tax.

    I believe in santa claus and the tooth fairy, too.

    (Data here: http://www.usgovernmentrevenue.com/revenue.php?sp

    • Greg says:

      Wine. They have a terrible wine and champagne selection. I live near a "premium" store and yet the selection is not based on demand, but on what the state bureaucracy decides to buy.

      But beyond that, why is the state selling alcohol at all? Assuming we can preserve the tax revenue, what are the arguments for preserving the system that causes a lot of dissatisfaction?

  2. Jon says:

    I've been to some restaurants that have over 50 different kinds of tequila or rum. There's a ton of products out there that niche stores would supply in a free market. Let the grocery stores have the most common brands, and let the smaller boutique retailers flourish. That would be good for the wine and liquor producers. My own tastes are pretty pedestrian, but that doesn't mean this shouldn't happen.

    We'll see what the forthcoming report on privatization options says about revenue, but that $500 million figure is misleading. The state stores only contribute about $125 million to the general fund. http://feedproxy.google.com/~r/LehighValleyIndepe….

    As for what to do with the surplus, I think we need to look at that as a separate question. Right now it will plug some of the revenue shortfall while other revenue collections are low due to the poor economy. But revenue's going to come back and there's going to be a surplus. Corbett may want to squander it as tax cuts. Fuck that. We need adultBasic, HEMAP, early childhood education, Weed and Seed and a number of other highly effective public services restored.

    • phillydem says:

      No matter how you cut it, the privitized business will have to generate 1.8% of state revenue to match what the current system brings in. Some wage and benefit costs will decline for the state, but they will more likely just shift to pension costs (for those state employees who will retire) and to other social and health services, not disappear entirely as I think is a common idea. It's probably a good assumption that the liquor store clerk jobs won't be unionized and therefore will come with few to no benefits or higher cost benefits and also very likely a standard retail 30 hr work week as opposed to a 40 hr work week. Meaning less disposable income to spend on other things at other businesses. That will cost the state money in income and sales tax revenue, too. There's no evidence the math in your cite takes any of that into consideration. Right now employee costs are all self-funded by the system. So the private operations will also have to fund those extra state costs in addition to generating the same or better surplus to the state.

      As for selection, if there's little or no demand for a product, no business is going to carry it. A store might stock some different items as a test, but if they don't sell at some minimum level, they won't be carried. My career was in inventory and businesses simply won't hold extra inventory just to satisfy the occassional customer who wants an exotic wine or liquor. Carrying inventory for the occassional demand costs money that could go to the bottom line profit. If I had to guess, I'd say the best variety of inventory would be in the 5 county Philadelphia region and perhaps Pittsburgh and some of its more affluent surrounding suburbs. I won't be the least bit surprised if the rest of the state actually ends up with less selection than they have now.

      • Jon says:

        We'll have to see what the plan is for the labor arrangements, but I personally have no problem if these turn into 30/hr a week non-union jobs. I'm all for trying to reverse the decline in private sector unionization in this country, but the solution is not for the state to directly employ people to do work that the private sector can and should do. Anyway, there's plenty of ways for the state to make up that revenue. Our buds at PBPC and KRC have demonstrated persuasively that Corbett could have closed the entire budget gap by closing corporate tax loopholes, taxing the Marcellus Shale and making the tax code more progressive. We're not going to get any of these changes while Corbett is the Governor, but then that's all the more reason to do this. If Corbett succeeds in privatizing the system and it results in a big drop in revenue, the Democratic Party will be in an excellent position to blame him and run on a millionaire's tax/Marcellus/Amazon/Delaware loophole or whatever. We'll have gotten a better liquor system and a new political issue.

        • phillydem says:

          Interesting perspective. Technically, just about everything the govt does is also done by the private sector in one form or another. I mean, really, who cares about losing good jobs with benefits when the alternative is being able to get 180 brands of tequila (that perhaps you were sampling when you replied) to choose from? But, I'll give you the benefit of the doubt and assume that you're just naive.

          BTW, when will the lost revenue be replaced since there's about 0 chance of a drilling tax being enacted or corporate tax loopholes being closed in the next 4 years at least?

          • Lew Bryson says:

            when the alternative is being able to get 180 brands of tequila (that perhaps you were sampling when you replied)

            Such a cheap shot. I can always tell when a neo-dry is losing an argument; they resort to calling the other person a drunk. Of course, anyone who drinks is a total alcoholic. You owe @Jon an apology.

      • Lew Bryson says:

        @phillydem…that's where most of the demand for more exotic items are, so of course that's where the best variety will be. That's where specialty stores will spring up and thrive, as they do in New York, and Massachusetts, and DC, and San Francisco, and Chicago: I've been to these places, and the selections are head and shoulders above anything offered in PA.

        But the thing is…right now, folks in Potter County are forbidden by law to buy wines that aren't available from the State Stores. Under a private system, they could get them in Philly or Pittsburgh. The State as wholesaler/retailer is a loser for those of us who want something more out of wine and liquor than just getting a buzz. Is that a crime?

  3. phillydem says:

    Was a tad cranky yesterday… so apologies.

    IMHO, the bottom line is that I'm doubtful privatizing liquor sales will result in greater selection overall or overall lower prices.

    For comparison:

    NJ: http://joecanals.com/monthly_specials/newspaperad
    PA: http://www.pawineandspirits.com/webapp/wcs/stores

    I just checked a couple of the "on sale" vodkas at Canals and there's about $1-2 difference in retail price from the state stores.

    • Greg says:

      For example – I bought a bottle of Bollinger (my fave champagne) in NY for $49. Same bottle in NJ was $37. It's not available at all in PA.

      • JohnRz says:

        Sorry Greg, but as a fellow champagne fan I've got to set the record straight. Poor Pa. prices and selection are a myth. Bollinger is available in premium collection stores. If you live in a small town without one it can be transferred in for you. The regular NV is $49.99. Don't buy it! The NV special reserve is offered at the same price. The La Grande Anne Brut is $102.49. Again don't buy it! Find a specialty store where you'll see it offered as a Chairmans Selection offering in a gift set with flutes for only $71.99. The publically owned Wine and Spirits Shoppes offer three other bottlings and one other available through special order. State Line, the most popular NJ "parasite" store feeding on the myth only offers the regular old NV. Priced at $49.99+ 9% AB tax. NY sales tax is I believe 8%. I wonder how much gas is wasted this way? Another myth is that this sort of pricing, selection, and state revenue can be achieved by private retailers and have them still make a profit. Remember the state has immense bulk buying power. The wholesale price paid by the little boutique store is going to be much higher than what the PLCB pays as the largest single buyer in the US. Another myth is the gallonage tax. The only reason it seems so popular in other states is because the liquor industry lobbies for it. It never adjusts to inflation you know. If prices double over time your stuck with the same revenue. Sorry guys but facts are facts and the consumer and taxpayer alike will rue the day they dismantled the publically owned system. Vive' le PLCB!

        • JohnRz says:

          Correcting myself. State line is in Maryland. Total wines carries the NV at the same price, $49.99. It's their only bottling too.

          • Greg says:

            I stand corrected, obviously! But the premium store in Easton doesn't have it, and no one is ever willing to look up or order anything. Just gruff all the time.

          • Lew Bryson says:

            Ah, John, cherry-picking again, I see. You can always find a lower price on SOMETHING at the State Stores by carefully picking your brands and the stores you compare; congratulations on your mastery of this art.

            Poor Pennsylvania selection is a fact. I can find plenty of bourbons across the line that aren't on any shelves in PA.

      • phillydem says:

        Well, you could get it, but you'd have to order it in to the store near you. But that begs the question why you paid $12 more to buy it in NYC than NJ. :)

        I don't know how the PCLB decides to stock items, but having done inventory management for the gov't, I'm pretty sure demand/sales is part of the equation. If there were a lot of special orders for a specific wine or liquor, that should be taken into consideration, but I used to tell my customers when they complained about not having something that I couldn't read their mind and they had to give me some data that I could use to justify buying what they wanted.

        • JohnRz says:

          Your right Phillydem, all you have to do is ask. And I can't find that $37.99 price anywhere in NJ through google. Joe Canals doesn't seem to even carry it. Canals has Dom Perignon on sale though. $149.99/ $4.00. PLCB regular price $139.99!

  4. JoyfulA says:

    Financing assistance for laid-off liquor store employees who want to open a liquor store.

    BTW, the state would be stuck paying all those mall leases.

  5. IF YOU REALLY THINK HOUSE BILL 11 IS A GOOD IDEA CHECK THIS OUT………………………………For a rough comparison, if Turzai's taxes had been in effect during the 12 month period of my original study, the state would have received approximately $383,283,000 in tax revenue instead of the $277,445,000 it received under the 18% liquor tax—an overall increase of 38%. I have to wonder whether Turzai's proposed excise tax rates violate Governor Corbett's pledge to not raise taxes.

    Let's take a look at how the proposed new wine tax compares to the 18% liquor tax, as well as the tax rates of one of our neighbors:

    Retail price 18% tax Turzai tax NJ tax

    Arbor Mist (750 ML) 4.99 0.76 1.63 0.17

    Franzia (5 L) 12.49 1.91 10.90 1.16

    Korbel Brut (1.5 L) 14.99 2.29 3.57 0.35

    M&R Asti Spumante (1.5 L) 24.99 3.81 3.57 0.35

    Stag's Leap Merlot (750 ML) 43.99 6.71 1.63 0.17