Daniel Okrent, former public editor of the New York Times and Pulitzer Prize finalist, is the best-selling author of Last Call: The Rise and Fall of Prohibition. He is currently curating a new exhibition with the National Constitution Center on Prohibition, which will open in 2012. Want to know more about the topic and his book? Check out the podcast from his recent visit to the Center on December 6, 2010.The Brewer’s Employment and Excise Tax Relief Act recently introduced by Senators John Kerry and Mike Crapo is unlikely for two reasons: it’s a bipartisan measure put forward in extremely partisan times, and in the context of American history, it’s a classic case of man bites dog: since the 18th century, whenever the federal government has been in need of cash, it has turned to the drinkers of alcoholic beverages to supply it.
It’s a habit as old as our government itself. In 1791, when Alexander Hamilton introduced an impost on alcohol, he considered it fair because, he said, “There appears to be no article …which is an object of more equal consumption throughout the United States.” The rye farmers of western Pennsylvania, of course, saw it differently, and rose in arms in the short-lived Whiskey Rebellion of 1794.
The tax lapsed in 1802, but then it came back with striking regularity – first to finance the War of 1812, then again to provide Abraham Lincoln with the wherewithal to fight the Civil War. This time it stuck around – and by the early part of the 20th century, more than 30 percent of federal revenue came from the bottle and the keg. The burgeoning Prohibition movement saw this as one of the main impediments to their campaign: if alcohol were outlawed – and the tax revenues it generated disappeared -- how could the government continue to function?
The answer came in 1913, with the ratification of the 16th amendment authorizing an income tax. This new source of money soon made the alcohol tax unnecessary, and the Prohibitionists were able to advance their own cause without risking government bankruptcy. Without the 16th amendment, the 18th would have been impossible. By the time it went into effect in 1920, the tax issue had become moot.
But in 1929, after nine years without any meaningful collection of taxes on the vast quantities of beer and whiskey moving through the illegal bootleg market, broad-based taxes no longer proved adequate: the stock market crash wiped out capital gains tax collections, the ensuing Depression devastated income tax collections, and the government was soon running on fumes. Pierre du Pont and the other plutocrats who financed the Repeal movement made the case that legalizing alcohol – and simultaneously re-establishing the excise tax – would not only provide the revenue the government needed, but would obviate the need for the income tax du Pont and his allies so despised.
In fact, the liquor tax did make a difference; in the first full post-Repeal year, 1934, fully nine percent of federal revenue came from the excise on alcohol. Much to du Pont’s dismay, though, the income tax stuck around. Seven decades later, at a time when federal revenue is again in a trough, Senators Kerry and Crapo are challenging not only the history of taxation on alcoholic beverages, but its logic as well.