Colorado has some of the lowest alcohol taxes, highest drinking deaths

Colorado’s taxes on alcohol are among the lowest in the country, and even though the state consistently ranks as one of the worst for drinking deaths, lawmakers have shown little interest in making beer, wine and spirits more expensive.

The state also taxes alcohol at a significantly lower rate than other “sin” products, with customers paying almost $2 in taxes on a pack of cigarettes — more than 20% of the cost, on average — compared to about 18 cents in taxes on a case of beer, or less than 1% of its cost.

Taxes clearly aren’t the only important factor, because some higher-tax states, like Alaska and New Mexico, still have elevated death rates. But experts say raising the cost of drinks is one way to curb consumption, along with reducing the number of locations selling alcohol and changing social norms around drinking.

Increasing the price of alcohol is particularly effective in deterring young drinkers, in the same way higher cigarette prices disproportionately turn youth away from smoking, with smaller effects on older users, said Dr. Bill Burman, former director of the Public Health Institute at Denver Health. But so-called sin taxes also send a message about risk, he said, and some studies found people cut their consumption after a state announced a tax hike but before it even took effect.

“We have evidence that we can have an impact,” Burman said.

This is the second story in The Denver Post’s four-part series examining why so many Coloradans die from drinking and the state’s failure to take action. This story will look at how the financial levers of taxes and state spending could help reduce deaths, while upcoming articles will focus on access to alcohol and treatment availability.

Alcohol-related deaths in Colorado surged more than 60% from 2018 to 2021, before dropping slightly in 2022, and the state consistently ranks in the top 10 nationwide for drinking deaths compared to population.

In 2022, more than 1,500 people died of a few alcohol-related causes the state tracks, including withdrawal complications and some types of organ damage. The actual toll is likely twice that when counting people whose chronic health conditions were caused or worsened by drinking, which makes alcohol deadlier than drug overdoses, which killed about 1,800 people in 2022.

In 2018, a state workgroup suggested increasing taxes on alcohol as one of four strategies to reduce the number of people who die from drinking. Yet Colorado hasn’t pursued any of those strategies, and the workgroup’s funding ran out in July.

Experts say raising state alcohol taxes also would make more money available for programs aimed at preventing unhealthy drinking and to enforce the state’s liquor laws. Currently, the department charged with regulating Colorado’s alcohol outlets can’t afford to fill all its open positions, and spending on alcohol prevention is less than 1% of excessive drinking’s estimated cost to the state.

Coloradans drink more than the average American, with each person over 14 consuming about 645 standard drinks per year, compared to about 536 nationwide, according to the State Epidemiological Outcomes Workgroup. (A standard drink is 12 ounces of beer, 5 ounces of wine or 1.5 ounces of hard liquor.) The state had the ninth-highest rate in the country of people who reported binge drinking, heavy drinking or both.

Conversely, Colorado has the third-lowest excise tax on beer and wine and the fourth-lowest on spirits, among states that levy those taxes, according to the Tax Policy Center. (While all states tax beer, 17 don’t have a specific tax on spirits and three don’t have one on wine, because they only allow state liquor stores to sell those products.)

Colorado ranking low on taxes and high on drinking deaths is no surprise, since people generally consume less when the price of alcohol rises, said Philip Cook, an economist at Duke University who has studied alcohol taxes.

Despite the perception that people who drink excessively won’t change their behavior, a federal tax increase that raised the price of an average drink by 6% in 1991 did lead to about 7,000 fewer deaths from alcohol-related accidents and fewer violent crimes in the first year, Cook said. He estimated that if states raised their excise taxes enough to make each standard drink about 5 cents more expensive, alcohol sales would drop about 12% and fatal vehicle crashes would fall about 7%. Researchers haven’t quantified any effects of tax increases on deaths from other alcohol-related causes.

“Chronic heavy drinkers, people who had been drinking 20 years or more and had liver disease, were responsive to taxes,” he said. “For that group, an increase in the tax and in the price of alcohol made a difference to their family budget.”

Raising taxes on only some alcohol products doesn’t appear to reduce consumption, though. When Illinois doubled the taxes on wine and spirits in 2009, a study found, residents shifted to consuming more beer, which wasn’t subject to a significant tax change, and overall alcohol remained steady.

States and the federal government go decades without changing alcohol taxes, so economists don’t have as much direct data about how people will respond as they do about other tax questions. So they also look at tobacco taxes, which governments have been willing to hike as both a revenue generator and a public health measure — a dual purpose that Coloradans most recently supported when they voted to raise nicotine taxes to pay for early childhood education programs.

Studies reported different results, depending on the population they examined, but generally found that cigarette consumption drops as taxes go up. Two studies since 2014 found that when the tax on a pack of cigarettes rose by $1, the average number of cigarettes residents smoked in a day dropped by 3.5% to 5.2%.

Not everyone agrees that raising taxes would curb drinking.

The state would do better to focus on making sure sellers behave responsibly, to prevent youth and people who are already drunk from buying alcohol, said Chris Fine, executive director of the Colorado Licensed Beverage Association, which represents non-chain liquor stores.

Taxing alcohol “doesn’t work,” he said. “Being responsible and controlling the access does.”

The legislature has talked about raising alcohol taxes before, but lawmakers are hesitant, because the Taxpayer’s Bill of Rights requires that tax increases go before voters in Colorado, said Micki Hackenberger, executive director of the Wine and Spirits Wholesalers of Colorado. The group, which represents businesses that ship alcohol from manufacturers to retail stores, doesn’t oppose a tax increase if it funds addiction treatment, she said.

“I’ve actually been surprised that they haven’t looked at it sooner, but it is expensive to go to the ballot,” she said.

Colorado last raised the tax on beer from 6 to 8 cents per gallon in 1981; on spirits from 22.5 cents per liter to 60.26 cents, also in 1981; and on wine in 1990, when it added taxes of either 1 cent or 5 cents, depending on the wine’s origin, and a $10-per-ton tax on grapes used for fermentation. The wine tax was scaled back somewhat in 2000, so that vintners pay a smaller percentage in taxes as they scale up production.

Unlike sales taxes, which rise when the price of the goods for sale goes up, an excise tax is a flat amount based on how much beer, wine or liquor the manufacturer produces. Customers don’t pay it directly, as they do with a sales tax, though the cost is rolled into the final cost of the product.

While the 8 cents Colorado charges for every gallon of beer brewed was significant at some point, it now is essentially a rounding error in the price of a six-pack now, Cook said. In the last four years, the average price of a case of 24 standard-sized beers in Colorado has increased from about $18 to $19.50, but the tax has remained flat at 18 cents.

“The effect is that when we have inflation, the inflation erodes the value of the tax,” he said.

A difficult industry to tax

Colorado voters increased tobacco taxes in 2004, 2016 and 2020. Currently, state taxes add $1.94 to the price of a pack of cigarettes, and the tax is set to increase to $2.64 per pack in July 2027.

In contrast, a six-pack of 12-ounce beers would have 4.5 cents in tax, while a fifth of liquor would have about 45 cents added to its price. Voters haven’t had to consider increasing alcohol taxes.

Local governments aren’t allowed to collect excise taxes, but they could conceivably pass sales taxes for alcohol, said Julia Stullken, an alcohol epidemiologist at the Colorado Department of Public Health and Environment.

If anything, the legislature has reduced tax burdens on parts of the industry. A law passed in 2021 allowed both food service and alcohol businesses to temporarily keep some of the sales tax they normally would have paid the state to help them stay afloat during the early stages of the pandemic.

The alcohol industry invests significant money into Colorado politics. Seven trade associations and large companies contributed at least $100,000 combined in campaign funds to Colorado candidates each year for most of the last decade. In 2022, when three alcohol-related measures were on the ballot, groups pushing for expanded access spent a combined $30 million — though it only brought them success on one of the three proposals.

Beyond campaign cash, the alcohol industry can also point to its role as a major employer in Colorado. A report from the Beer Institute estimated that about 58,500 jobs are linked to the beer industry in the state, generating more than $11 billion in economic activity.

A lobbyist who previously worked with the alcohol industry said lawmakers find it challenging to take any steps that would increase the cost of business for liquor stores and other small businesses that sell alcohol. She spoke on the condition of anonymity over concerns about potential professional retaliation.

“If you have 1,800 small liquor stores saying, ‘This is my livelihood, this is how I pay my mortgage and send my kids to college,’ legislators are going to be reluctant” to disrupt that, she said.

Alcohol regulation isn’t an easy topic, because a proposal that might satisfy retailers could upset manufacturers and distributors, or vice versa, said Rep. Marc Snyder, a Colorado Springs Democrat and chair of the House finance committee.

“It is a very difficult space to get to consensus on legislation,” he said.

Snyder said he’s not entirely opposed to raising alcohol taxes, but worries that sin taxes create a situation where the state becomes dependent on the revenue and loses focus on trying to discourage smoking or drinking. It might be better to focus on education campaigns to change public norms, which have been successful in making drunk driving an unacceptable choice for most people, he said.

“It’s been a great transformation in my lifetime,” he said.

Costs far exceed prevention, regulation spending

The Centers for Disease Control and Prevention estimated excessive drinking cost Colorado about $5 billion, or roughly $1,005 per person, in 2010. That was the fifth-highest cost in the country, mostly due to lost workplace productivity. The number has almost certainly gone up since then, as alcohol consumption rose over the last decade.

Comparing how much Colorado spends on alcohol prevention with the economic cost of excessive drinking is difficult, but the state’s spending isn’t close by even the most generous accounting.

In the fiscal year that ended in June, the Colorado Department of Public Health and Environment spent about $19.5 million on programs to discourage the use of tobacco, alcohol and marijuana. The department couldn’t say how much of that funding went to alcohol prevention, though it did point to a $171,000 program focused on improving the public health system’s capacity to respond to drinking. But even if all of the $19.5 million had gone to alcohol prevention — which it didn’t — and the economic cost to Colorado hadn’t grown since 2010 — which is unlikely — the state’s spending on prevention would still equal only about 0.4% of the economic damage caused by drinking.

The state spends even less on regulating alcohol, allocating just under $5 million to enforce its liquor laws, even though it collected about $55.5 million in excise taxes on spirits, wine, beer and hard cider in the most recent fiscal year.

In comparison, Colorado spent about $15.7 million on the Marijuana Enforcement Division. That was itself a small fraction of the $56 million in excise taxes on marijuana and $219 million from its 15% marijuana-specific sales tax the state collected in the fiscal year that ended in June.

Low taxes on alcohol make enforcement of the state’s liquor laws challenging, because the number of compliance agents hasn’t increased alongside the number of places licensed to sell liquor, Stullken, of the state health department, said during a 2022 workgroup meeting.

“We’re asking them to do more and more with the same amount of money,” she said.

The Liquor Enforcement Division at the Colorado Department of Revenue is authorized to have 65 employees, but has had to leave five jobs open because of a $565,000 shortfall in what the legislature appropriated to fund it, director Michelle Stone-Principato said. Right now, the division has 27 full-time investigators who focus on liquor compliance and eight who handle tobacco compliance statewide, though they also work with county and city officials, she said.

While checking whether businesses are selling to minors is the most widely known part of the job, the officers also investigate if manufacturers are following sanitary procedures when they bottle drinks, whether distributors are paying their taxes and if bars are committing other crimes, like selling illicit drugs or facilitating prostitution, Stone-Principato said. They also sometimes get involved after fatal crashes involving drunk drivers, to find out whether a business sold the person alcohol when they already were intoxicated, she said.

The division tries to educate liquor businesses about state laws, monitors alcohol sales at festivals and investigates complaints from the public, Stone-Principato said. In a typical week, state liquor enforcers receive five to 10 complaints, she said.

Funding has been relatively flat at about $5 million in recent years, even though the cost of employee benefits has continued to rise, Stone-Principato said. That’s made it difficult to fill positions and contributed to employees burning out from the workload, she said.