Not So Fast With Your Dreams of Cheap Wine, Philly

Tom Corbett and the Republican-controlled PA House are either very smart, or very dumb. As they push their liquor privatization bill through Harrisburg, they are either trying to pull a fast one on Pennsylvanians who expect better selection and lower prices (which they know cannot happen with this bill). Or they’re very dumb, and actually believe the bill they’re peddling will accomplish those things.

I’m betting on the latter.

Currently, huge numbers of Pennsylvanians continue to stock up in other states, like New Jersey and tax-free Delaware, to the detriment of Pennsylvania’s state coffers. The fact that Corbett and the House Republicans think that situation will change with the current bill (which passed the House on party lines) makes you wonder if they were drunk while crafting such bad legislation.

PA Liquor Taxes Will Remain High

This bill is a non-starter, and should it pass the senate in its current form—far from certain, since Majority Leader Dominic Pileggi is lukewarm and the GOP lost 10 percent of its seats in the last election—the people will be vastly disappointed upon realizing that prices will be the same, or even higher.

Here’s why.

The whopping 18 percent Johnstown Flood tax (established to rebuild that city after its 1936 flood) remains in place, and on top of that there’s the state sales tax. End of story for lower prices.

Being hamstrung by such an onerous tax gives the potential wholesalers and retailers absolutely no wiggle room, forcing them to keep prices substantially higher than in stores in neighboring states.

There are only a few players in the nation with the capital to buy in at the wholesale level, which will cost tens of millions just to get a seat at the table. And that’s just the beginning.

Funny thing about liquor: It’s bulky and very heavy. Transporting it across 45,000 square miles will take one hell of a lot of trucks and drivers, neither of which come cheaply. There will be the need for huge warehousing space in multiple locations. Personnel requirements will be substantial, and the costs associated with distribution networks and other ancillary logistical issues will be considerable. And last I checked, fuel costs were near record highs.

It’s Not That Easy for Your Local Beer Distributor to Start Selling Wine

Making this bill even less than gin-dandy are the pie-in-the-sky revenue projections related to licensing. Beer distributors would be able to now sell wine and liquor, with the purchase of an expensive initial license fee (and subsequent renewals). Great, except for three big problems:

1. Most beer distributors are small, undercapitalized mom-and-pop operations. Where exactly are they coming up with the cash required for a license?

2. Assuming a distributor could get a license, they would have to add considerably more square footage to their existing stores, or lease/buy a much larger space altogether. Wine and liquor take up a lot of space, and recession notwithstanding, that space isn’t cheap.

3. Distributors know nothing about wine, so, in order to compete, they would have to hire additional staff with knowledge about vino.

One of two things will occur. Many distributors can’t or won’t apply for licenses, and for those who do, their prices will increase to make up for their additional costs. When you add in the mandated Flood Tax, it becomes obvious that overall costs have to rise, perhaps dramatically. Distributors would also have to compensate for the loss of revenue associated with the widespread availability of six-packs and the elimination of the buy-beer-by-the-case law.

Here’s How Corbett Should Fix PA Booze Sales

Granted, many politicians are slow, but this one should be a no-brainer.

Eliminate the 18 percent tax. Some will ask how to make up for the revenue shortfall. That’s easy. First, you don’t keep a tax that’s wrong just because you happen to rely on the revenue it provides. You fix it. Second, that’s the legislature’s job every budget season: Decide how much money goes where. If there’s a shortfall, other slices of the pie get smaller. Tighten the belt like families do.

But there wouldn’t be a shortfall. If the incentive is taken away to go to other states, untold millions—which would be “new revenue”—would find its way into Pennsylvania because of the massive rise in liquor sales. Remember, as it stands now, the state is getting zero from the millions currently flowing into other states.

Corbett and the Republicans need to put down the bottle and either rectify their error of pushing a bill they think is good, or stop the political expediency of rushing a bill they know is bad but can deceivingly trumpet as a success purely for reelection purposes.

Do liquor privatization right, or not at all. You don’t have to be blitzed to know that.