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Reason Foundation

Reform, Transportation Trump Revenue-Neutrality in Virginia ABC Privatization Plan

Leonard Gilroy
October 8, 2010, 5:00am

In my new column, I argue that the rationale for Virginia Gov. Bob McDonnell's plan to disable the Commonwealth's wholesale and retail spirits monopoly goes far beyond revenue-neutrality. Policymakers take their eyes off the ball when they fail to account for: (1) the benefits that accrue to the state and taxpayers from new transportation investment (which ABC privatization plan would facilitate), and (2) getting the state out of an archaic, non-core enterprise that abuses taxpayers. An excerpt:

Still, some in the Assembly are complaining that the current plan would not be revenue-neutral, since the annual revenue derived from the proposed spirits excise tax would fall $47 million short of the $226 million currently raised through the existing ABC monopoly markup and excise taxes (which would be eliminated under the plan). This argument isn't unexpected-state legislators do not release their grip on state revenue streams easily, after all-but it is short-sighted, for two key reasons.

First, the current ABC monopoly is profitable because it does what monopolies often do-it abuses its monopoly status by overtaxing spirits consumers, sending profits to the state's general fund to pay for general government services. Those services ostensibly benefit all Virginians, so the costs of those programs should properly be borne by all taxpayers alike, not just the convenient target of spirits consumers.

In that light, the fact that the proposed ABC plan would generate less revenue for the state suggests a major step in the right direction, since it implies that consumers and taxpayers would gain some relief from overtaxation concurrent with the benefits of more choice, convenience and competition. Weaning the state from excessive monopoly profits should not be construed as a bad thing, despite the inevitable complaints from legislators that would always prefer more tax dollars to spend.

Second, ABC privatization is not a fiscal issue, it's a government reform issue. Running a liquor monopoly is not a core function of government, as Gov. McDonnell and others have stated repeatedly. A majority of 32 states rejected the state ABC monopoly model outright at the end of Prohibition-opting for privatized spirits wholesale and retail from the outset-and no state has ever transitioned from a privatized model to a state monopoly model. Texas, Arizona, Georgia, California and the other 28 privatized states simply recognized early on that alcohol is alcohol, and it doesn't make sense to treat spirits any differently than beer or wine.

Check out the full article here, as well as a related piece here.


Leonard Gilroy is Director of Government Reform


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