Sunday, November 3, 2013

The PA government reports on their liquor monopoly

The full report is here.

The Commonwealth Foundation does a nice job summarizing the report here.

One point they raise is worth expanding:

  • Of the $512 million transferred to the Treasury, a whopping 83 percent was simply tax revenue. Private stores would generate that same amount and more in taxes as outlets arise.
A couple points:

1. I understand the point the CF makes in their "profits vs. tax revenue" argument, but all the money the government makes on overcharging for this product could be classified as tax revenue.  Yet, since other firms have to pay sales tax into the state and don't get to call it profit, it is worth examining the pre-tax profits.

It is a sign of inefficiency that with a government monopoly on alcohol, the profits are only about $100 million across the entire state.  That's under $10 for every person in Pennsylvania.  I think Wal-Mart earned more in only Pennsylvania last year.  I wish we could claim the low profit's for the state were because Pennsylvania prices were lower, but prices here aren't low.  It's because of their inefficient operations.  Speaking of that ...

2.  Look at this organization chart, pulled from the report

I find this stunning and think about how much it must cost. I think the answer is on page 50, listed as "Central Administrative Support".  That totals $68.5 million.  That's outrageous.  Before you state: "but even if we privatize liquor, we'll need some support people in the government who we'll have to pay anyway", they already have an additional line-item for that.  (I think.)  There is a line for "Commonwealth-Provided Services" for $12 million.  Therefore, the $68.5 million is the administrative cost for the PLCB.

If liquor is privatized, prices would likely be lower, and with a slight increase in the tax rate (looks like about 15% more than the current rate), the state could keep making the same amount of revenue.  The overall price to consumers would likely fall, and firms would increase their profits.

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