The HS Dent Financial Blog

RSS      

Looking to Plug Gaps in State Finances? Repeal Prohibition

Prohibition was repealed long ago, of course.   President Franklin Delano Roosevelt found it convenient to reintroduce booze into American popular culture for two reasons.  First, it won him votes.  Secondly, it brought in a windfall of tax revenues at a time when they were sorely needed.

With all levels of government — federal, state, and local — facing varying levels of fiscal crisis, and with faith in our elected representatives at a level so low as to border on outright contempt, might this move from FDR’s playbook be worth a look?

It has long been a paradox in the United States that one can drive an automobile at age 16, can fight and die for the country in the military at age 17, and can own firearms as a civilian at age 18…but you must be 21 in order to legally consume alcohol.  What does it say about the quality of our political system when we trust 18-year-olds with the right to vote — and shape the nation’s destiny — but we don’t trust their discretion to have a beer at a football game?

There have been calls from social libertarians for years to legalize and tax “soft” drugs, as the enforcement costs of keeping them illegal is high and real whereas the benefits of the prohibitions are much harder to quantify.  We have our doubts as to whether drugs will be legalized in the United States.  For many people, this is simply a bridge too far.  But we think that it is possible and even likely that the drinking age will be lowered.

While the prohibition does keep most of the under-21 crowd out of bars, no one could argue with a straight face that it makes much of an impact on underage drinking in private homes and parties.   Meanwhile, local governments spend real money paying law enforcement to catch underage drinkers and in paying to process them via the courts.   Lowering the drinking age to something that makes sense would reduce these costs while also increasing tax revenues.  After all, a beer at a bar costs more than a beer at home.

Interestingly, a lower-level court in South Carolina ruled that the current alcohol ban on those under 21 is unconstitutional, arguing that it is discriminatory to restrict the rights of adults (aged 18 and above) based solely on age.

Of course, Congress could speed the process along by changing the highway funding rules.  Today, states cannot receive federal highway funds unless the legal age of alcohol consumption is 21 or older.  This restriction was never popular in many states, and frankly, it is of dubious constitutionality as it could violate the 10th Amendment, which guarantees the rights of the individual states to manage their own internal affairs.

Given the massive size of the Echo Boomers — the peak of which is turning 18 this year — all levels of government must be licking their chops at the prospect of reaping the alcohol taxes on this generation.  If they’re smart, they’ll lower the age sooner rather than later.   Whichever party manages to do it first might even win the loyalty for at least a few years of the biggest cohort of new voters since the original Baby Boomers.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy