State should get out of the booze business

Next time you have a cocktail, be sure to toast Lorraine Lee and Roger Hoen.

Never heard of them?

These two members of the state Liquor Control Board (LCB) unilaterally voted May 6 to increase the price of hard alcohol. Starting in August, prices will jump. A $10.95 bottle of whiskey will go to $11.85; a bottle of rum that is $15.95 will increase to $17.30.

How do they do that? The state monopolizes the sale of liquor and LCB can set prices. People criticize oil barons, but the state’s enjoying the real “windfall profit.” Alcohol sales and taxes brought in $877 million last year.

The liquor board approved the latest price increase because the Legislature raided its funds, transferring out $78.6 million to help deal with the state’s deficit. LCB says it must replenish its funds. While the Legislature’s move — taking money from a dedicated account — is questionable, you have to wonder if this was a convenient excuse to make more money, considering the revenue LCB enjoys.

And who actually suffers the hangover from this increase? You, me and Washington businesses.

Buy a bottle from the state store and almost 75 percent of the cost goes to taxes and price markup. “Markup” is the state’s artificial price increase — if the state pays $10 for a bottle, it adds $5 to the cost and that doesn’t even include taxes.

LCB’s price increase had nothing to do with supply or demand; the board just decided it needed more revenue.

It’s time to discuss a change to Washington’s Prohibition-era control over liquor. The state should privatize distribution and sales.

Why, in this day and age, do we allow government to run an industry that could be operated in the private sector? Entrepreneurs should be free to pursue legitimate business opportunities.

LCB says it must control sales for the protection of minors and the prevention of excess consumption. But privatizing sales could actually improve accountability by placing these mandates on business owners who want to protect their reputations in the community. Incidentally, a 2006 compliance study by EFF showed 1 in 5 minors who attempt to buy alcohol from a state store is successful.

Furthermore, the claim that LCB is only interested in limiting consumption goes against all evidence. Liquor sales in Washington have more than doubled since 1997, with the state’s profit soaring every year. The Legislature even approved opening stores on Sunday, which is hardly consistent with the “moderation” goal.

No, the real reason the state would oppose privatization is the money it makes. Again — $877 million in 2008.

But would the state really lose out? Geoffrey Segal of the Reason Foundation has suggested that privatizing the liquor industry is revenue-neutral, and the state may even collect more revenue by eliminating operating costs.

The state would still collect excise taxes on alcohol sales. Plus, new businesses would create jobs and contribute additional tax revenue for the state. The state could divest itself of the infrastructure required for distribution and sales – warehouses, delivery routes, retail stores. The sale of these assets, plus moving the LCB’s employees into the private workforce, would result in significant savings for the state.

Will Washington release the bottle? Doubtful. It may take a citizen’s initiative to get the state to get out of the liquor business.

Michael Reitz is general counsel of the Evergreen Freedom Foundation, a free-market policy institute in Olympia.

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