District of Columbia

The Fiscal Year 1998 District of Columbia Appropriations Act mandated that GAO study the taxation and regulation of alcoholic beverages in the District. This report compares the District's taxes on alcoholic beverages with those of neighboring Maryland and Virginia; determines whether the District's alcoholic beverage tax structure can be brought into closer conformity with those in surrounding jurisdictions; determines how much higher the Districts alcohol excise tax rates would be if they had been indexed for inflation; determines whether existing empirical research indicated that raising the District's taxes is likely to curb alcohol abuse; identifies which states earmark their alcohol taxes for specific purposes; and describes characteristics of effective alcohol prevention programs and regulatory policies, especially with regard to youth, that the District government could consider adopting.

GAO noted that: (1) compared to taxes levied in nearby jurisdictions, the District's combined tax rates are higher because its sales tax is among the highest; (2) the District cannot conform its alcohol tax structure to match those in surrounding jurisdictions because tax structures among neighboring jurisdictions differ significantly; (3) the District's per-unit excise tax rates have declined in inflation-adjusted terms since they were last changed, and special sales tax rates on all alcoholic beverages have compensated for the lack of indexation of the excise tax rates, these taxes will continue to decline gradually in inflation-adjusted terms; (4) economic theory and empirical evidence indicates that increases in the District's alcohol taxes are likely to reduce alcohol use, especially among youths; (5) at least 24 states have earmarked at least a portion of their alcohol excise tax revenues for specific purposes; and (6) best current evidence suggests that several legal and regulatory strategies, along with visible enforcement with education about these laws, can reduce illegal drinking and alcohol-related problems in the District of Columbia.