Budget Deficits and Alcohol Excise Taxes in Connecticut

Entering fiscal year 2005, Connecticut faces a revenue shortfall of up to $84.8 million.1 In response, the state government has cut education funding, raised tuition mid-year for state universities, and laid off state workers. The state faces continued decreases in revenues, and the deficit will likely grow. By law, since Connecticut must maintain a balanced budget, it must cut services, increase revenues, or both. Raising alcohol excise taxes, last done in 1989, provides one rational, politically popular means of providing needed new state revenues. In his state of the State address, Governor John Rowland (R) proposed increasing alcohol taxes by 10 percent to help close the state’s budget gap. In addition to providing an estimated $2.0 million in FY 2003-2004 and $4.4 million in FY 2004-2005 in revenue,2 raising alcohol taxes may help reduce rates of alcohol-related problems, particularly among underage drinkers. Public opinion polls show that a strong majority support raising alcohol taxes, especially when the money is earmarked for alcohol prevention and treatment programs. This report compares Governor Rowland’s proposal to several other alcohol-tax increase options. Regardless of the amount of increase, revenues raised would inevitably lower the state’s budget deficit or provide funds for state prevention programs and/or other public services. In the interest of simplicity, this analysis does not consider all wines. It considers only still wines from large wineries, since the state of Connecticut imposes different excise tax rates on still wines from small wineries and on sparkling wines. We do not include them