Tom Corbett Asks the Right Question: What’s the End Goal of Alcohol Reform?

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In honor of the anniversary of the 21st amendment, let’s take a look at what Tom Corbett said about alcohol reform in his one of his interviews with PA political media heavyweights:

But two, what this really comes down to is an issue of consumer choice. I’ve been asking people, ‘What do you view privatization? What’s your view of it?’ Is it, as I call it, the New Jersey view, all those guys who go to the shore, go to Ocean City and everyone stops at Circle Liquors … and gets everything they want at one location. Is that it?

Or is it … we vacation in South Carolina … is it the South Carolina view, where you walk into the grocery store … and they have wine at one end and beer at the other. And I finally figured it out, they want to make you walk through the grocery store to buy other things, to get the two. And then next door, in a separate location, is a spirits store. Is that it? We’re still working that out. And talking with the Legislature.

Whatever you think about the privatization plans on the table, Corbett is absolutely right that this is how people should think about the issue: what do we want this to look like at the end?

So far, the game Mike Turzai’s been playing is figuring out ways to give consumers a little more choice without meaningfully disrupting the business models of the incumbents in the alcohol market. Politicians have been starting from the “don’t mess with the incumbents” position, and then looking for small ways to expand choice and convenience.

This has all led to some really awful bills that even supporters of a more consumer-friendly alcohol market can’t get behind.

To get a bill worth supporting, we have to start at the end goal and work backwards like Corbett’s saying. What are we aiming for here? What has to happen to get us there? Advocates for a more consumer-friendly alcohol market need to have a set of demands to ask politicians for, rather than mistakenly assuming everybody who says “privatization” means the same thing.

So here again is the list of demands Lew Bryson and I came up with that we think the pro-consumer left and the free-market right could agree on:

1. Let supermarkets sell beer, wine and liquor, purchased from private wholesalers. This competition will likely kill the State Stores anyway.

2. Charge a flat fee to any business that wants to sell booze – no cap on licenses. This will actually make more money for the State, and make it easier for non-nuisance bars to thrive.

3. Tax volume, not value. The Johnstown Flood Emergency Tax makes cheap booze even cheaper, while making better booze even more expensive. Go to a gallonage tax, like almost every other state.

4. Allow Pennsylvanians to buy wine, spirits, or beer in other states, or through the mail/Internet from anywhere, without penalty. — End the police-enforced monopoly.

5. Allow any authorized retailer to sell beer in any volume they desire, without fake restrictions. — End the case law.

6. Open up the wholesale market to more competition. — More wholesalers means more competition, which means better prices and service.

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25 Responses to Tom Corbett Asks the Right Question: What’s the End Goal of Alcohol Reform?

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  2. WassupPA says:

    How can you say that pro-consumer groups would be for any of the proposals on your list? Consumers want the greatest possible choice at the lowest possible price. The present state wholesaler system is critical to providing PA consumers with both. Consumers can’t support any proposal that does away the present system. I, as a consumer, want to be able to buy my wine and beer in grocery stores but I don’t have a problem buying liquor (which I go through less quickly) from a state store, and it would be great if the state store was next to my local grocery store. I also don’t have an issue having to go to a state store or specialty shop to buy higher end wine.. face it, my grocery store is never gonna stock a great selection of $100+ bottles of wine and their buying power to get them will never compare to the state’s buying power. Buying power yields better selection and better price. I respectfully disagree with your list.

    • Jon says:

      The state wholesaler system prevents all kinds of wines and liquors from getting sold in PA, and the PLCB’s insistence on registering every kind of beer sold leads to lots of beer brands not getting sold. Remember that PLCB raid on the bar that was serving illegal unregistered beers? That was insane. Opening up the wholesale market to more competition will make it more likely that somebody is carrying the niche brands some people want.

      I agree that supermarkets won’t carry all the niche brands, and that’s why we need to let privately-owned specialty shops open too. In a free market for alcohol, grocery stores will end up carrying all the most popular brands of beer, wine and liquor, and they’ll have the best prices. People will open smaller speciality shops that carry more obscure stuff in places where there’s a market for that, in the bigger metro areas. They’ll still carry all popular stuff, but won’t be able to compete with supermarkets on price. They’ll be competing on convenience – like when people need to pick up a hard-to-find brand of wine but also a bottle of Jack Daniels. They’re not going to drive all the way to a supermarket to save a couple bucks, they’ll just buy it with the wine.

      In this case, it’s not monopsony buying power from the state wholesaler that keeps prices low, it’s competition between large retailers who can afford to cut their prices to undercut the competition. When supermarkets and Wal-mart and Target and Costco are all fighting each other to offer the lowest price on Jack Daniels, consumers win.

  3. Joe Gable says:

    Our “no guts” Governor and General Assembly will not take the intelligent action of getting the state out of the business of selling wine and liquor as long as the Union does not want this currupt system to end. I am confident I will continue to go out of state to buy wine and liquor for a long time.

    • Jon says:

      They won’t do it if nobody asks them. Currently all the incumbents (yes unions, but also beer distributors and the tavern owners’ association, and some social conservatives) are coming at state legislators with specific demands, so those of us on the consumer side also need to have a set of demands. Do you agree with the stuff on the list? What do you want to see happen at the end of this?

  4. Giovanni says:

    These are some excellent points here. In the end, my fear is that if there are restrictions on licences to sell wine and spirits, this is not going to help the consumer or promote competition. If the original idea to sell only the existing licenses remains in the legislation, then we will all be forced to go to Wal-Mart and other similar retailers to buy wine and spirits. They have the money to buy as many or all of the existing licenses regardless of cost. Beyond this, when it comes wine, consumers are really impacted. We cannot join wine clubs, we cannot purchase via the internet and therefore, are foreclosed from this market. This must be changed because wineries and other internet businesses will not ship to PA.

    I do not have any confidence that this privatization plan will be executed properly.

    • Jon says:

      Yep, because of the court decision you now have Wal-mart and Wegmans and all the rest of the grocery stores with seating competing for tavern licenses with bars and restaurants. It’s horrible, but so far nobody’s been talking about correcting it.

  5. Pam says:

    The last information I saw on Washington state, which just recently privatized their alcohol sales, was that prices had gone higher and people from Washington state were going out of state to buy alcohol. Has that stabilized? I’m concerned that the same thing will happen here. Also, there was a spike on underage buying of alcohol once Washington state government got out of selling alcohol – has that settled down? These are valid concerns and it has nothing to do with union jobs. If this is the end result of Washington state, will we learn from their mistakes or just go forward haphazardly like we are now with the bad legislation that’s been introduced thus far in PA?

    • Jon says:

      I don’t like the legislation that’s been introduced so far either, which is why I think we need to talk about end results. Personally, I think the biggest deterrent to teen alcohol consumption is money. Alcohol is expensive. PA’s current gallonage tax on beer is very cheap, and the practice of taxing value instead of volume makes the really cheap booze that teenagers want cheaper than it would be under a gallonage tax. The other way to combat underage drinking is through mandatory ID scanning.

      I don’t know what’s up with higher prices in Washington. Did they limit the number of liquor stores through licensing? If not, I don’t think that can be sustained for long. It’s like the proverbial $5 on the sidewalk. High prices signal a profit opportunity, which will attract entrepreneurs, who will open more liquor stores, and compete away the profits until prices are lower.

      • Short answer to “what’s up in Washington”:
        The state assessed additional taxes to make up for the shortfall in state revenue that would have come from the “profits” of the state booze monopoly.

        • Jon says:

          I’ve never been among the people pretending it would be a huge boon for the budget. I’d still support it if it turned out to be a money loser. That’s not the point.

  6. John Rzodkiewicz says:

    Your demands seem to reflect the views of those of those that drink more than, let’s say, once per week. To be fair let’s add a few for the other 77%. We all do have a stake in this.
    http://www.niaaa.nih.gov/alcohol-health/overview-alcohol-consumption/drinking-statistics

    1. Any change from a publicly owned to a privately owned system should carry a guarantee to be revenue neutral to the previous owners. (That is the citizens of Pa.)

    That makes your gallonage tax demand a tough trick to pull off. The various incarnations of Mike Turzai’s bills tried but to insure the State would get the same revenue but box wines still would have jumped from $11.99 to about $26.00. You are right to say a gallonage tax effects the value end products more but they are what most Pennsylvanians buy most of the time. The Turzai tax would have raised the prices on the majority of the top 50 selling wine and spirits brands sold in Pa. This probably a major reason why none of his versions of privatization ever made to the House floor. And a gallonage tax is static. That is why it is the darling of the industry. Turzai added language to review the tax every five years. That had to be laugher to any member of the legislature that knows they can review and change any tax at any time they’re in session. For example we tax beer that way in Pa. Despite the fact that we have one of the lowest beer taxes in the country it hasn’t been changed since 1947. Since then it has lost 9o% of it’s real value but every time someone suggests bringing it in line with inflation the beer lobby pounces, beer writers shake their booga-booga sticks, and nothing happens.

    2. The previous owners of the stores ( that’s us) should be compensated for any increase in external social costs from the potential increase in consumption.

    The going rate from the latest studies seems to be $1.90 in cost to society per $1.00 of sales . that might be a little steep but I’m sure we can work something out. There is no doubt that increased consumption increases external costs. Ask any policeman or emergency room worker on a Friday night.

    3. The new owners should not be allowed to limit the selection available to the old owners living in rural areas, nor should they be allowed to price gouge them.

    Simply put this means the availability of a similar selection of products a customer can order now, about 30,000, that they could have shipped to there local rural store now at the same price you would pay in the metro areas. I don’t have any idea how they pull this one off but the Plcb manages to do it, and if private is better than public the new owners should be able to do it to.

    4. There should be no loss of family sustaining jobs. (including mine.)

    OK, this one is just a bit selfish, but do we really want to trade family sustaining, taxpaying jobs for low wage jobs supplemented by food stamps and with health benefits supplied by the state? Wall-mart is already Pa’s largest employer, and as hard as their “associates” work , and they do work hard many will always be part of Mitt Romney’s 47% until something changes. Some thing has got to. This is a step backwards in that battle.

    I’m sure some of those that read this will come back with the same old unproven theories theories and quotes from the Commonwealth Foundation. They’ll tell us how will get corporate taxes from big boxes and grocery chains that are already paying that tax. Mostly to Delaware. Total Wines uses the loophole too. They’ll talk about more outlets and more jobs when in historically privatization has mostly resulted in re-allocation of shelf space and the responsibilities of existing employees. They will cry foul, and complain nothing needs to be revenue neutral and that the are being picked on, when in reality even for those that drink a couple times a week it doesn’t add up to much at the end of the year. A favorite is that we will get the tax money the same as we do now. That has to have them rolling in the halls at the Dept. of Revenue. Even our Governor is guilty of, among other things, misrepresenting the situation. If you click the link to the article Jon refers quotes from in the main post, before he gets to his vacation stories, he claims the Plcb is “manufacturing” its own liquor. Truth is the Plcb is just offering house brands to bring a good product to consumers at a reasonable price. Just like other retail chains. BTW I read the other day where Table leaf Merlot beat out Trader Joes house brand in a blind tasting.

    Largely ignored in this debate is the natural experiment going on in the State of Washington. They recently privatized in a way crafted to be revenue neutral and the result has been higher prices unless you live near Costco and are satisfied with their 70 itemsand less selection everywhere unless you happen to live near one of the New Total Wines. It has spawned a cottage industry in shoplifting as grocery stores were not equipped to handle the problems that come with selling there new product. Small Mom and Pops that bought licenses are already closing as the big boys squeeze them out. Border bleed has become phenomenal with publicly owned stores opening and expanding on the borders with Idaho and Oregon. In state sales have seemed to increase too. See external social costs.

    It seems to the least risky way to meet some of the demands Jon and I have made and the best way to benefit all Pennsylvanians is to put the notion of privatization aside and work to modernize the current system. I’m looking forward to the legislature moving to amend parts of the liquor code so modernization can move forward this session.

    • Jon says:

      Thanks John. A few points:

      First, how do you reconcile points 1 and 2? If you want to reduce the increase in social harms, then you need to raise the price of the low-end swill that alcoholics buy. Alcoholics (and teenagers) are trying to get the most alcohol for the least money. Moving to a gallonage tax is a good way to raise the prices of the lowest quality products and mitigate the harms from problem drinking. We should be doing that whether or not we’re privatizing the state stores. I also think the gallonage tax should be indexed to inflation, especially the tax on beer. Cheap beer is the most commonly abused kind of alcohol for alcoholics and teens.

      Point 3 is basically an argument for state subsidized alcohol – again, the opposite of point 2. You’re talking about forcing companies to match the state subsidies that now make alcohol in rural areas much cheaper and more plentiful than would be the case in a free market. I see zero public interest in subsidizing alcohol cost or availability. If retailers were to charge rural residents the actual market price of providing the current selection to them, it’s true that price would be higher. I guess you’d call that “price gouging” but I don’t think that’s right. How the PLCB does it now is that profits from the stores in larger metros are basically subsidizing money-losing stores. There’s no state interest in doing that, and we should stop doing it whether or not we privatize the stores.

      On Point 4, I think we have a different view of what the public sector is for. To me, the public sector is not a jobs program. The purpose of the public sector is to provide public goods and public services that the market either does not provide, or does not provide enough of. The sale of alcoholic beverages does not meet any of those criteria. Alcohol is not a public good, and selling alcohol is not a public service. There is definitely market demand for alcohol, so much that the big problem is that the market “wants” to supply too much alcohol. But I don’t see any evidence that the state store system is a good deterrent to problem drinking. The best ways to fight that appear to be high taxes on low-end products and advertising bans.

      Paying above-market wages to state liquor store employees does not take us either forward or backward in our fight to raise service sector wages. It has no effect on this struggle, because it will never be an option for the government to own all the retail and food service businesses and pay all those workers above-market wages. Doing this for one sector in one state does not provide any clues as to how to increase wages for, say, Wal-mart employees. Unless we’re going to nationalize Wal-mart, there is no lesson here.

    • Albert Brooks says:

      1. Any change from a publicly owned to a privately owned system should carry a guarantee to be revenue neutral to the previous owners. (That is the citizens of Pa.)
      A: So when the system is more efficient and provides more total return to the citizens maybe the UFCW will donate their dues to charity. You seem not to understand the marketplace outside of PA. Cheap things may get more expensive and more expensive things may get cheaper depending on taxation and demand. Gallonage taxes work very well in other states and have for just as long as the PLCB has been screwing the citizens of PA.

      2. The previous owners of the stores ( that’s us) should be compensated for any increase in external social costs from the potential increase in consumption.
      A: Let’s see, the PLCB gave $80 million to the state on sales of $2B. So anything that beats the .4% (yes POINT 4 %) that the PLCB does based on your $1.90 per $1 sales formula will be an improvement. I don’t see any problem there.

      3. The new owners should not be allowed to limit the selection available to the old owners living in rural areas, nor should they be allowed to price gouge them.
      A: A complete lack of understanding how the free market works. Remember that well over 60% of people want to be rid o the PLCB because they are already gouging us.

      4. There should be no loss of family sustaining jobs. (including mine.)
      A: What is your measure? A large portion of PLCB jobs are part-time and certainly don’t qualify as “family sustaining”. The state shouldn’t be a jobs program anyway. With license limitations there will be a large increase in jobs since your boogy-man big box stores won’t be able to buy all the licenses as you constantly claim. Also, as I pointed out to you before, Wal-mart is not the largest employer in PA. It is #3.

      5. “I’m sure some of those that read this will come back with the same old unproven theories, theories and quotes from the Commonwealth Foundation.”
      A: Washington is running ahead of estimates for tax collection and that will trigger the REDUCTIONS that are part of the liquor privatization legislation.

      6. “A favorite is that we will get the tax money the same as we do now.”
      A: No, well get more, More people working, More stores, business taxes, more sales, and if done half-assed correctly, less border bleed. Even Washington is selling more volume in the state due to convenience and PA will do even better. Also, the citizens won’t have to fund the shortfalls of the SERS retirement the PLCB uses. Not spending money works too. How many millions will that be from now until…..oh let’s say FOREVER?

      7. “BTW I read the other day where Table leaf Merlot beat out Trader Joes house brand in a blind tasting.”
      A: Yep, compare a $3.50 bottle to a $7.50 bottle. How about trying to find a $3.50 bottle in PA to start with. Your own CEO doesn’t even know what the story is with Tableleaf. What part is he lying about? How it started or how much was spent or maybe that ethics investigation will come up with something else.

      8. “Largely ignored in this debate is the natural experiment going on in the State of Washington”
      A: Of course, the state of PA is exactly like the PLCB and they don’t learn from the mistakes of others and can only do things one way. Done properly most of what Washington has negatively experienced can be mitigated.

      • John Rzodkiewicz says:

        Albert has all the answers and shows his confidence in his plan and his courage by posting under an alias. Wise choice if Pa privatization goes through and turns out to be a loser like it has in other states. Or if he wants to hide his personal stake in this. What is his plan? Other than spouting Commonwealth Foundation talking points, no one knows. But it really is the best plan ever.

        • Albert Brooks says:

          I’M not important enough to have a plan, not like a store clerk but I do know retail and economics and I know what the free market can do. My stake is that I’d like to own a store and stock the things that I now go out of state to buy. And, yes I am one of those middle age males that John fears. One that can look up facts John so conveniently likes to twist. Like Wal-mart being the largest employer and the PLCB curbing under-age drinking when most border states do a better job and so many others.

      • Albert Brooks says:

        Unlike John I can admit a mistake. My math in #2 is wrong, I had one to few zeros so the number is 4% and not .4% Still not even close to what he said the state should be compensated for. He works at the PLCB so he should know.

  7. John Rzodkiewicz says:

    Jon, it seems seems you have bought into the myth that only the poor have alcohol problems when the facts are the demographics show the largest group for binge drinking are late middle aged males making over 70K.
    The Wall-Mart problem doesn’t have to be solved by nationalizing the chain. riasing minimum wages, allowing the employees to collectively bargain and making the company reimburse the State for the public monies used to subsidize there employees would do it. The Wall-Mart heirs hold more wealth than the bottom 42% of the US combined. They can afford it. The problem isn’t that the Plcb employees are underpaid, or that they are somehow subsidized by tax dollars. It’s that the rest of retail are underpaid and rely on safety net benefits to survive.
    The fact is no State has increased they’re revenue from privatizing liquor. Ever. Washington may become an exception, but only with an exceptional increase in consumption. I’m not sure they aren’t just losing beer and wine sales now that spirits are more available. We’ll have to see how that shakes out.

    • Jon says:

      I don’t think only the poor have alcohol problems, but I do think that the people who are the biggest problem drunks – by which I mean people whose drinking causes harm to others through violence, property damage, etc – are mostly abusing cheap beer, liquor, etc. They’re buying for volume. I think there need to be higher alcohol taxes in general, but especially on low end products. We could achieve this through minimum alcohol pricing, like they’ve proposed in the UK. That would be a great way to replace the revenue.

      I disagree about the problem being that everyone else in retail is underpaid relative to PLCB. If PLCB employees a huge outlier, clearly that means they’re the ones who are overpaid. I agree that the way to raise retail wages is a higher minimum wage and unionization of big retail chains. A recent Demos report showed that we could set a minimum salary of $25K and it would have a very small impact on consumer prices. I’d be all for that. And I’d be all for it because it’s a way to raise wages across the board, not just for one tiny sector in one state, paid for at state taxpayers’ expense. There is no lesson for the whole retail sector in the PLCB model.

      There’s also nothing wrong with wage subsidies. If we think the market wage for retail is too low, then we should raise taxes and subsidize wages through EITC, negative income tax, or something more radical like a Universal Basic Income. The way to go after the Wal-mart heirs is to raise their taxes, either through more progressive income taxes and consumption taxes, or a higher estate tax. Over time I think we should move toward a 100% estate tax – reset the board at the end of the game for everyone, and use the money for social insurance to give everyone a bigger leg up in life, not just a few lucky heirs.

  8. Ed H. says:

    There just isn’t a way to privatize liquor sales and be as effective as the Commonwealth has been on providing services to under served areas, reducing underage drinking and providing revenues for the state (which means keeping taxes lower for everyone, with PLCB revenues of over $500 million a year, portions of which are dedicated to enforcement of liquor license laws. The jobs the PLCB provides at the state stores are middle class sustaining jobs. Pricing is competitive. The issue of registering beers, wines and spirits for sales in the state could be streamlined, without throwing the baby out with the bath water.

    • Jon says:

      I’d say that providing underpriced alcohol to rural areas is not a legitimate public service and actually is a public health disaster. There’s no evidence that the state does a better job of deterring underage drinking than states that sell it all in grocery stores, and there are plenty of better ways to replace the revenue. The PLCB only returns $100 million to the general fund – the other $400 million funds the PLCB’s operations, and mostly running the stores themselves. Only $100 million needs to be replaced. You can easily do that through higher beer gallonage taxes and wine and liquor gallonage taxes. Or you can sell more store licenses or allow any restaurant to buy a license at a flat rate if you need to raise more money. The public sector is not a jobs program. It’s for providing legitimate public services, not overpaying a small minority of the retail labor force to sell highly profitable consumer goods.

      • John Rzodkiewicz says:

        “A moment’s thought makes it obvious that alcohol is different from, say, apples. Apples don’t form addicts. Apples don’t foster disease. Society doesn’t bear the cost of excessive apple consumption. Society does bear the cost of alcoholism, drink-related illness, and drunken violence and crime. The fact that alcohol is habit forming and life threatening among a substantial share of those who use it (and kills or damages the lives of many who don’t) means that a market for it inevitably imposes steep costs on society.” Modernization is different in that it responds responding to customer needs, not corporate greed.” I love that quote. If you don’t get it, you don’t get it. This all boils down to what system we trust most to distribute a product that is for the most part used as a recreational drug. Refer to my link above to see how much having to make a trip to the Wine and Spirits store effects most people. The other 77% have a stake .

        • Albert Brooks says:

          What is this 77% you are talking about? The NIH chart you link shows that 41.5% of men drink once a week or greater and it is 23% for women. There is no way that works out to 77% of the population who drink less then once a week. Just how do you make up these numbers?

          Most people don’t like the PLCB so a trip to the state store probably fosters that dislike.

          • John Rzodkiewicz says:

            Reading comprehension Albert. I said more than once per week. Simply add up the figures and take an average.

    • Albert Brooks says:

      Actually, the PLCB only gave$80 million last year and still had negative assets. In a private system demand will be filled where ever it is. Will you have to order things…sure, just like you have to now. However, the more populous parts of the state will greatly benefit from more convenience, selection and pricing.