Visitor7, CC BY-SA 3.0 Still reeling from Governor Lujan Grisham’s veto of last year’s alcohol tax increase, lawmakers in Santa Fe are ready for another round. This time, they’re slamming back a much larger tax hike of up to 650% on beer, wine, and spirits that would rake in another quarter billion in taxpayer dollars, despite their enormous budget surplus. New Mexico representatives should reject this regressive cash grab that could deal a knock out blow to struggling bars, restaurants, and small liquor shops across the state.
COVID lockdowns were devastating to the service industry. Bars and restaurants bore the brunt of the economic havoc wrought by stringent social distancing measures and prolonged business closures. Now, nearly four years later, the institutions left standing are combatting sustained price increases, labor shortages, and an economy that threatens to tip into recession. The last thing that local eateries need now is a $250 million tax hike on their most profitable products.
If enacted, H.B. 179 would impose a significantly higher tax rate equal to 25 cents per can of beer, glass of wine, or shot of liquor. That’s anywhere from a 375% to 650% increase above current rates. While proponents claim New Mexico to have unreasonably low alcohol tax rates, the state already has the highest excise tax regionally and is in the top 10 nationwide for all types of alcohol. Moreover, consumers already pay around 5 to 8% in taxes on alcohol, via state and local gross receipts taxes.
The reality is that New Mexico is in the midst of a revenue boom. Virtually every tax on the books is seeing dollars flood in at a record pace. Even after a 50% increase in state spending over the past three years, the government now expects a whopping $3.5 billion in surplus revenue. That’s equal to one-third of the entire state budget, even as other blue states like neighboring California deal with gaping budget deficits. To raise taxes in a time of such explosive revenue growth is a slap in the face to the hundreds of thousands of New Mexicans who can barely afford basic necessities in an inflationary world.
Industry in New Mexico can expect to take a very real hit if H.B. 179 passes and is signed into law. The beer and liquor industries together account for nearly 20,000 jobs and over $1 billion in economic activity. As residents begin avoiding bars and restaurants to drink more cheaply at home instead, some people, especially those living near the border, may simply drive across state lines to purchase their drinks from Arizona, Texas, or Colorado. Meanwhile, hardworking bar and restaurant owners at home in New Mexico will suffer the consequences of lost customer revenue and higher wholesale prices.
H.B. 179 isn’t the only alcohol tax hike moving through the legislature. Lawmakers are also mulling H.B. 212 and 213, each of which would restructure the tax system from a per-gallon or per-liter wholesale tax to a direct tax on the retail value of a drink. These bills would tax liquor at double the rate of beer, meaning that under H.B. 212, a bar patron will be asked to cough up 12% of the cost of an old fashioned cocktail, but only 6% for an IPA.
Even under those penalizing costs, none of these taxes would accomplish what bill sponsors suggest it would: forcing people to cut back on their drinking. A study commissioned by the Oregon Health Authority found that a major excise tax increase on beer, wine and cider would have raised $240 million – eerily similar to New Mexico’s H.B. 179. Yet it would only have suppressed public alcohol consumption by 4%, and for heavy drinkers, a negligible 2%. It is no wonder that the study was secretly hidden from the public for three years after its completion, even as Oregon nearly passed the very tax hikes its findings advise against. Meanwhile, a legislative impact report in New Mexico came to a similar conclusion, estimating a minor 5% reduction in consumption under the proposed tax increase.
Senator Craig Brandt echoed these concerns in a recent op-ed. “For two years in a row, we have heard that the solution to New Mexico’s well-documented issues with alcohol abuse could be solved by imposing a record excise tax on alcohol,” Sen. Brandt wrote. “While proponents of this idea are well-intentioned, raising taxes is often a recipe for unintended consequences wherein more harm is done than good.”
Rather than soak the public in counterproductive new taxes, Senator Brandt’s peers in the legislature can capitalize on their economic momentum by putting some of those surplus taxpayer dollars towards another permanent reduction in the gross receipts tax, widely acknowledged to be one of the most harmful taxes in the country, or catch up with nearby states phasing their income tax down to zero. In the meantime, lawmakers should reject these proposed tax hikes as Governor Lujan Grisham did last year, or risk crippling an industry that thousands of local bars, restaurants and breweries rely on to survive.