Commentary on Rehm et al.: Utilizing return on investment analysis to advocate for tax increases

Abstract

Rehm et al.’s return on investment (ROI) analysis specifically evaluates financial returns of the March 2017 alcohol excise taxation increases in Lithuania over 1 year by considering five social components: (i) costs of implementing tax changes; and the differences in (ii) healthcare costs; (iii) productivity; (iv) legal system costs; and (v) excise tax budget revenues. The attention to a broad range of outcomes highlights the social benefits of increased alcohol taxes beyond increased revenue; this could be particularly useful for communicating with policymakers and the public.

Findings show that for each euro invested, the return was 420 euros – this is astonishing, and clearly a ‘win–win’ in terms of simultaneously reducing harms and increasing revenue. However, the tax increases in Lithuania were significant, with a doubling of excise taxes on beer and wine, for example, which resulted in an almost 7% reduction in alcohol affordability [1]. Importantly, similar increases in excise taxes in other countries or regions, such as US states, would not have the same impact on affordability given that alcohol excise taxes account for a much smaller portion of alcohol prices overall [2, 3].

Furthermore, while the impacts of increased taxes in Lithuania are clear, with some directly attributable to taxes after the tax revenue increased by 20%, several other drastic alcohol policy changes also occurred. Specifically, from 2008 to 2018, Lithuania experienced: excise tax increases, bans on alcohol advertising and increased penalties for drunk driving in 2008; availability restrictions, such as banned off-premise sales from 10:00 PM to 8:00 AM, in 2009; excise tax increases in 2017; and reduced availability by increasing the legal minimum age to 20 years, reducing off-premise sales hours and a near full alcohol advertising ban in 2018. These are all recommended as ‘best buy’ policies by the World Health Organization [4], and it is possible that having these other policies in place synergistically affected outcomes. While Rehm et al.’s ROI analyses focus on a single year to avoid confounding by these other policy changes, this assumes no policy interaction or cumulative policy effects and ignores the behavioral adaptations that had occurred in an already restricted market. Thus, other countries or localities would likely not experience similar magnitudes of ROI unless other restrictions were made.

Regardless of the magnitude of the ROIs, increased revenue would obviously still be gained in places that increase alcohol excise taxes. This increased revenue is needed in places like the USA, where current taxes cover a small fraction of the costs to society per drink: the most recent available data show that combined federal and state ad valorem and excise taxes averaged to a total of 8 cents per standard drink for beer and 18 cents per standard drink for spirits in 2015 [5], while the most recent data from the US Centers for Disease Control show that the costs to society from drinking averaged to $2.05 per drink in the USA in 2010 [6]. Given that these data are from more than a decade ago, the current fraction of costs covered by taxes is probably even lower. Thus, the need to increase alcohol taxes as the mechanism to cover costs incurred by the drinker appears obvious. Furthermore, given the low levels of alcohol taxes [7], modest or even substantial tax increases like those implemented in Lithuania would likely be unnoticeable to the average drinker in the USA in terms of absolute increases in total price. The same is likely true for many other countries given generally low levels of excise taxes [8].

Despite the obvious need to cover costs to society from drinking, opponents have called tax increases regressive and discriminatory because they might impact some demographic groups more than others. Opponents have also argued that taxes do not reduce consumption. Though economic data do not support any of these arguments [9], excise taxes remain low around the globe and are rarely raised [7, 8]. An ROI analysis like Rehm et al.’s could be useful for advocating tax increases in other countries and localities. Rehm et al. have done us all a great service by laying out a methodology that can assist in both estimating ROI as well as in communicating the range of financial and social benefits associated with alcohol tax increases.

Meenakshi S. Subbaraman is the sole author of this commentary.

No financial or other relevant links to companies with an interest in the topic of this article.