Wednesday, June 24, 2009

The Economics of Alcohol-laced Liquids

Mother’s Against Drunk Driving spent $80,000 to lobby Congress in 2004. Less than 10 percent of the over $10.5 million in government grants they received that year and less then 1 percent of their total contributions. As a matter of fact, MADD’s spending on lobbying against drunk driving between 1998 through 2004 was a paltry $372,500. During that same period, they received government grants in excess of $43,000,000. There is a war on the American public, but to a different purpose. Restaurants, bars, media, attorneys, and most assuredly the government are transferring billions of your dollars to their pockets with the licensing and sale of on-premises alcohol-laced liquid.

Yes, there is a conspiracy. No, it’s not an illusion. The alcohol producers tell their shareholders that business is booming. Government licenses the majority of alcohol retailers in the manner most profitable to them, a point of sale that requires driving afterwards. The Food Services industry employs a million more people to handle on premises alcohol consumption ($43 billion retail sales in 2002) than they would were alcohol not served. “To Go” alcohol outlets by contrast employ a fraction of that number of employees. Of course, the restaurants and bars could argue that a smaller fraction of restaurant and bar employment is related to alcohol sales. Between 1998 and 2004, the National Restaurant Association contributed $4 million to political candidates and spent another $6 million in lobbying. Was this for more liberal food preparation?

For the past thirty years 1.5 million drivers have been arrested each year. Doing a bit of math, let’s figure about $10,000 per case attorney fees and we’ve got $15 billion in lawyer income. Estimate about 20 percent of that as pretax profit to the firm and its worth $3 billion in IRS receipts. That’s not including the 80 percent that went to wages, all of which is taxed too.

Alcohol and crime, or rather the pursuit of criminals, creates the movement of money and that creates income for government. If the income received from alcohol and the pursuit of criminals creates more government receipts than it costs, then the government benefits from these activities in proportion to their growth. While it’s doubtful that Congress consciously writes laws to prey upon our citizens, you’ve seen how they directly benefit from special interest money when these laws exist. There is a direct “incentive” for their existence, and a “disincentive” for their elimination.

In 2002, the federal government’s income included $858.3 billion from individual tax returns, $148 billion from corporation tax returns and $7.8 billion from excise tax on the sale of alcohol . The cost for the Federal Bureau of Prisons that year was $4.6 billion. To pay for the entire prison system required only 40 percent of the excise tax money collected from the sale of alcohol.

The crimes legislated from alcohol and illegal drugs are some portion of the individual and corporate tax receipts. While we can’t know exactly the economic benefit to government and industry from alcohol sales and crime in 2002. We can make an quick estimate that it in excess of $63 billion dollars, more money than the gross domestic product of one-forth the states in America.

The real eye-opener is that as large as $63 billion is, it likely counts for less than 50 percent of the full impact. This only accounts for the money made from beer, wine, liquor sales, and DUI crime. It doesn’t account for the billions of dollars (with another 50 percent returning to government) spent within the medical and pharmaceutical industries on the larger problem of alcohol-created disease.

Looked at from an even wider perspective, excise taxes on alcohol sales, paid over half (57 percent) of the operating costs of the Federal Bureau of Investigation (FBI), Drug Enforcement Administration (DEA), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), Federal Prison System, U.S. Marshals Service, U.S. Attorneys, and Organized Crime and Drug Enforcement Task Forces combined.

This single excise tax was over four tenths of one percent of the total income for the federal government that year. Do you truly think anyone in power wants to end that? All that money changing hands from the sale of beer, wine, liquor and DUI. Well, they don’t. Moreover, they can’t!

If DUI ended—just went away—it would be a crippling jolt to the economy and to the government’s ability to govern us. This explains, in monetary terms, the lack of ‘don’t drink and drive’ messages relative to the abundance of ‘do drink’ messages from profiteering industries.

Well, what about prohibition? If alcohol is so dangerous that it has a negative effect on the lives of tens of millions of Americans, why not make it illegal again. Even without the organized crime argument, the table above illustrates that it would raise unemployment 1.2 percent within weeks and the loss of the excise tax income would be compounded by paying out unemployment benefits to all the laid off workers.

There is no tax income earned by government for the mere ownership of money. If you own twenty million dollars, have no taxable property, and consume nothing that is taxed in America, you would have a tax free lifestyle. For the government to receive benefit, there has to be some economic velocity to money. If you have five thousand dollars in a savings account and earn three percent simple interest on it, the federal government receives income of $23 that year, assuming a 15% tax bracket. If you remove that money from your savings account and pay it to an attorney to defend you, the government earns money from:

a. The portion of the money retained as end of year profits to the firm, estimating 20% of five thousand dollars taxed 20% federal income tax would pay Uncle Sam $200.
b. The portion of the money distributed as wages to the firm’s employees would be the remaining 80% of five thousand dollars taxed at an average 20% federal income tax and 15.63% FICA tax for a tax contribution of $1,425.

I realize this is a rough cut of an income statement, but it illustrates the point accurately. If you have an accident drinking and driving that costs five thousand dollars for a defense to save you from the government’s ire, the government earns $1,625 of your wealth in tax income. If that money stays in your savings account, they earn $23. If you are government — alcohol crime pays.

All of the rhetoric about “Costs of crime” are necessarily limited to a slice of data that supports a single point of view. Looking at the whole, alcohol, and alcohol crime, is a moneymaker for both its industry and the government.

Between 1998 and 2004, the Association of Trial Lawyers of America spent $22 million lobbying Congress and contributed another $14 million to politicians. Much of that money was spent to prevent legal reform that would in effect cut their payday considerably. While this liberal spending is not about alcohol or drugs per se, the point of fact doesn’t change, attorneys win from harsher laws related to drinking and driving. The employees in a lawyer’s office will take the money they received from your savings account as wages to them and spend most of it, yet more transactions that create tax revenues.

Money must flow to earn a living for the government and a cash poor government like ours is heavily incentivized to do all it can to maximize the inflow of cash from all sources.

My point isn’t that the government is trying to trick you into committing an alcohol-related crime, but rather that they have no incentive to protect you so that you don’t. In fact, they are highly incentivized to promote, create, and allow you to drink liquids laced with alcohol, which is notorious for making people do stupid things, and then stand by to cash in when you do something stupid. This explains the explosive expansion of on-premises drinking establishments over the past thirty years better than any other logic!

Upsetting as it might be, DUI crime is an important part of America’s economy if you are the government. Moving back to a common sense theory of economics for a moment, if DUI crime wasn’t profitable, why would our government manufacture so much of it with more liberal on premises drinking laws combined with more severe alcohol-related crime legislation? If it cost more to have alcohol-related crime, then alcohol-related crime would be a source of the nation’s deficit, but if you look at the nation’s income statement, it’s a cash cow!

Now you know that if you visit Happy Hour, consume a liquid containing a government supported drug that makes you stupid, and then do something stupid afterward. You’re not a victim — you’re prey.

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