 California governor's proposed nickel-a-drink tax an effort to close budget gapSacramento, Calif. -- In the week since the governor called upon the California legislature to hold a special session addressing the state's multibillion-dollar budget shortfall, estimates about the deficit have continued creeping upward, and the state wine industry is among those being tapped to help clean up the mess.
One of the revenue-generating proposals set forth by Gov. Arnold Schwarzenegger is an excise tax on alcohol, which would raise the tax from 20 cents per gallon of alcoholic beverage to five cents per drink. The California Department of Finance estimates that the new excise tax, which applies to wine, beer and spirits, would raise $293 million during the 2008-09 fiscal year and $585 million in 2009-10.
The revenues generated from the tax would be used to pay for alcohol prevention and treatment programs, the funding for which currently comes out of the state's General Fund, said H.D. Palmer, deputy director for external affairs in the Department of Finance office, who told Wines & Vines that the revenue projections are based on consumption data collected by the state government.
According to figures provided by the Finance Department, one gallon of wine contains 25.6 drinks (assuming 5 ounces equals one drink). At that rate, a gallon of wine would be taxed $1.48, a $1.28 per gallon increase over the current 20 cents per gallon alcohol excise tax.
The Wine Institute, an advocacy group for the California wine industry, objected to the governor's tax proposal and released the following statement: "Wine Institute is opposed to any increase in excise taxes that would single out California's vintners and winegrape growers to bear the burden of the state's budget shortfall. The California wine community generates $52 billion in economic activity each year to the state and we are willing to do our part to support broad-based approaches to address our state's fiscal challenges."
Gov. Schwarzenegger said that since he signed the Budget Act 2008 on Sept. 23, "The mortgage crisis has deepened, unemployment has increased, and the stock market has lost almost 20% of its value." Speaking last week, he quoted the budget shortfall as surpassing $11.2 billion. Looking into the future, the Legislative Analyst's Office said Tuesday that the deficit could grow to $28 billion by July 2010 unless lawmakers act quickly and effectively.
The alcohol excise tax would come in conjunction with $4.4 billion across-the-board spending cuts and other tax changes, which include a three-year increase of 1.5% on state sales tax (estimated to garner $3.54 billion during the 2008-09 legislative session) and a corporate penalty for the understatement of tax (estimated to accrue $1.51 billion during the same period).
Of the $293 million the state expects it would get from the alcohol excise tax during the 2008-09 year, $27 million would fund substance abuse services for CalWORKs participants; $116 million would fund similar programs for prison inmates and parolees; and $150 million would go to the Department of Alcohol and Drug Programs, "to provide a variety of prevention and treatment services, including services currently provided pursuant to Proposition 36, the Drug Offender Treatment Program, and the Drug Medi-Cal program," according to a financial breakdown provided by the governor's office.
"By establishing this dedicated revenue source, the state can ensure that these critical programs continue to provide alcohol and drug prevention and treatment to California's most needy citizens," the statement said. Read the proposal on the Department of Finance website.
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