In recent years, Minnesota’s tourism and hospitality industries have struggled to recover the business they lost during the Great Recession. It’s been a slow, difficult struggle. Those restaurants, resorts, bars, and related businesses that have survived have adapted to new realities, especially customers who are more cost conscious than ever and economize in their discretionary spending.
That’s why the idea to raise Minnesota liquor taxes by up to 600 percent makes no sense. It will kill jobs, reduce already small profits for many struggling bars and restaurants, and diminish local governments’ revenues from municipal liquor stores.
The last time an excise tax was raised on alcohol – by the federal government in 1990 – it caused widespread decline in sales and led to significant job losses. Those repercussions will be repeated in 2013 if the Minnesota House’s proposal to increase the state alcohol excise tax becomes law. Economists project about 9,200 Minnesota hospitality jobs would be lost.
How can a tax increase that has been described as “only seven cents per drink” cause so much damage? Well, it won’t cost just seven cents to consumers. The increase would force business costs higher for wholesalers and retailers like short-term borrowing for purchasing their inventories. It also would increase in the interaction with the sales tax charged at the cash register. Minnesota-based Summit Brewing says the real cost to consumers would be twice the projected claim, which translates into about $4 per case of beer. Spirits and wine would go up $1-2 per bottle in price overnight too.
This may not sound devastating at first blush, but it will be – especially in two areas of our state.
First, retailers in border communities near Wisconsin, Iowa, and North and South Dakota will be big-time losers. All four of neighboring states have lower liquor tax rates than we do. It’s not that they under-tax drinking; rather Minnesota has a long history of very high taxes on liquor. (There are six different taxes imposed on it: Federal excise, state excise, state gross receipts of 2.5 percent, bottle tax on wine and spirits, state sales of 6.875 percent and many local-option sales taxes.) Just to put this in perspective, about half of what consumers pay for beer, wine, and distilled spirits is tax. The excise tax increase will cause prices to rise significantly and simply drive many border-area consumers across state lines to make their purchases.
Ours is the second area which will tae a major hit from this massive tax increase. It wouldn’t cause tourists not to come here, but it would cause them to buy fewer or less expensive drinks when they frequent area restaurants, bars, and liquor stores. In aggregate, visitors and seasonal residents may spend the same but less of their money will to area businesses, to be spent again in the Brainerd-area economy. Instead more of those tourist dollars will be diverted down to Saint Paul.
Our state lawmakers have a tough job juggling competing interests, and widely varying plans on taxes and spending. I don’t envy their jobs as they bring the 2013 legislative session to a close.
But, having spent 33 years in the business, I know from personal experience that a “modest” alcohol tax increase will have an outsized and negative impact on our local economy and other people across Minnesota.
Toni Buchite is the manager of Fifty Lakes Bar and Bottle Shop.