Thursday, August 5, 2010

Governor McDonnell and Liquor Privatization

Governor McDonnell's proposal to privatize the sale of liquor is continuing to dominate coverage of Virginia politics (my earlier post is here).

Today's Post has an excellent comparative analysis (here) of Virginia's, Maryland's, and the District's liquor sales systems. 


Although a fifth of scotch costs about the same in the three jurisdictions ($25.00), Maryland and DC each collect only about $2 on the sale, whereas Virginia's government gets $13 under the state-run system!

As I understand the analysis, the difference is in the distibution chain: Virginia cuts out the wholesalers and is thereby able to reap a much larger differential on each sale.

The aggregate result is dramatic.  Yearly state collections from taxes/sales of liquor:
  • D.C. - $10 million
  • Maryland - $24 million
  • Virginia - $248 million
In light of these numbers and the ongoing refusal of Virginians to raise taxes, I just do not see how McDonnell's proposal goes anywhere: the money to run the state has to come from somewhere, and this proposal would eliminate a big (and, according to the Post article, reliable) chunk of revenue. 


If not for this summer's newly found budget surplus, I'm not sure McDonnell would even be pushing this right now.  Privatization would simply take too much money out of the state coffers and -- politically -- would be viewed as an insider-boon to retail supporters of McDonnell.

It sounds as though McDonnell's aides are arguing they are going to craft a revenue neutral version of the plan, but the industry insiders quoted in the Post say that's not possible:
Experts with the Distilled Spirits Council of the United States, one of a number of industry groups that has been advising the governor, are skeptical about the state's ability to match the $248 million revenue stream it gets today. According to an analysis by the council, overall government collections on a gallon of liquor would have to reach $25 in Virginia to match the state's current revenue. That would make taxes in Virginia five times the average in other privatized states. "If you try to impose that kind of tax, you're never going to get the up-front revenue you need. You're taxing away everybody's potential profit," said David Ozgo, an economist with the council, which is neutral on privatization but generally supports modernization of liquor sales.
459. What kind of liquor is drunk by the most people worldwide?  What about in America?  Which is most remunerative?  I'd guess whiskey is the most popular in America, but perhaps gin.

460. How many states run their liquor sales systems similarly to Virginia?

461. I read that Kluge wine was served at Chelsea Clinton's wedding this past weekend.  Was it the primary wine, or just one of many?

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