Markets will out

Five men have been killed and another seriously injured in a huge explosion at a Boston industrial estate amid claims it was sparked by an illegal vodka making operation.

Stick the tax up too high and people will homebrew.

That people are homebrewing might be an indication that taxes are too high.

It\’s a general point that has to be kept in mind about tax rates. You can\’t assume that everyone is going to obey the law. Yes, of course, distilling (as opposed to brewing) is illegal, it\’s tax evasion not avoidance, but people will still do such things if they perceive tax rates to be too high.

And the very fact that people are doing such evasion is a sign that the people doing it think that rates are too high.

That general point again: tax evasion is proof that the people doing the tax evading think tax rates are too high.

Back to the specific case about booze: do we think that ever higher taxes on booze would lead to more such moonshining? And at what point does the harm caused by the consumption of moonshine ( you\’ve actually got to be good at distilling not to poison people with methyl alcohol) outweigh the harm not done by the law abiding not boozing as a result of the price of booze?

Something for the puritans to ponder perhaps?

 

37 thoughts on “Markets will out”

  1. The price of alcohol is incredibly low, even with the tax. If people are resorting to industrial-scale bootlegging then it’s about criminally undercutting everyone.. retailers, producers and the taxman. You can’t slice one element of the price out and put all the blame there.

    Taxes on booze are fine by me. When’s the last time you walked through a provincial British town centre on a Friday night? The market is perfectly happy with the level of tax on booze, and our town and city centres are profoundly unpleasant as a result. The more tax levied on the people responsible, the less needs to be taken from everyone else.

  2. The old rule used to be that if you really want to drink methyl alcohol, go to a hospital party.

  3. theboynoodle.

    OK, do you have any figures for how much less tax we all pay because of the specific tax on alcohol ? Or to put it another way how much would income tax rise if booze taxes were lower ? Call me an old cynic but I rather doubt that governments would happily cut general taxes in return for a big alcohol tax hike.

    Can anyone tell me if there’s any reason, other than lost tax revenue, why it’s legal to brew your own but not to distill it ?

  4. I wonder if they were selling it.
    It’s legal to distil for your own use in New Zealand.
    Probably some European countries too.

  5. Thornavis

    http://www.hmrc.gov.uk/stats/tax_receipts/table1-2.pdf

    That’s £9bn, then. That’s how much tax is specifically raised from the people who buy booze, and how much tax would have to be raised elsewhere (or not cut elsewhere) if we didn’t have booze duty.

    Actually, it’s more that that anyway, isn’t it. As we know, we apply VAT on top… so make it £10.8bn.

    Of course… the governments never cut one tax when they raise another. That’s because they’re always spending more than they raise.

    But let’s imagine a world where the state has been stripped back, and there are taxes that can be cut… surely a tax on the consumption of something that yields no economic benefits for society as a whole and, indeed, is a significant state cost driver (helath and law enforcement), which hinders productivity (hangovers and post-session sickies), and which impinges on the ability of others to walk through town on an evening without feeling a desperate urge to kill and maim… SURELY that is not the tax that you cut.

  6. BTW it’s pretty much a myth about the methanol. All that can happen is that you concentrate the methanol that was already in the mash in the first part of what you distil off. If you throw this away (or even just mix it in with the rest), you’re fine.

  7. That general point again: tax evasion is proof that the people doing the tax evading think tax rates are too high

    Does that also mean that an increased rate of shoplifting is evidence that shopkeepers are charging too much?

  8. “The price of alcohol is incredibly low, even with the tax.”
    Compared with where?
    “surely a tax on the consumption of something that yields no economic benefits”
    Of course it does, otherwise people wouldn’t exchange money in return for alcohol.

  9. theboynoodle.

    Well you can imagine a world where the state has been stripped back but I don’t see it happening anytime soon so it’s all a bit abstract.

  10. ChrisM

    1. Compared with the cost of everything else. It’s entirely subjective, of course… but I consider that the price of alcoholic drinks compares fairly favourably to the cost of non-alcoholic drinks. Perhaps one can argue that booze duty levels have forced down the costs of production and distribution to ensure that the very poorest in society can still drink themselves into oblivion on a regular basis. The market does, indeed, will out.

    2. OK, point taken.. clumsy language on my part. The point is that it’s not even like fuel duty where we can argue that all of society benefits from people being able to travel around. The economic beneficiaries of the alochol industry are predominantly those directly involved in the alcohol industry… and, whilst being far from a puritan, I don’t think that the alcohol industry does much good for society. I can’t make any case whatsoever for society being improved by alcohol being cheaper.

  11. Thornavis

    Quite. So what point are you making? I didn’t suggest a duty hike to lower other taxes.. but I would strongly oppose a duty cut.. which we both seem to agree would necessarily increase other taxes.

  12. @theBoyNoodle

    That is a strage way to compare things. Afterall, alcohol is cheap compared with cars, diamonds, nuclear power stations, houses etc. A more sensible way to compare the price of alcohol is to compare it with the price of alcohol elsewhere. This also has the benefit of NOT being subjective.

    The economic beneficiaries of alcohol are not merely those who are in the industry; the economic beneficiaries are everyone who drinks. You are confusing economic and financial. Society is improved by all those things that society wants, being cheaper.

    Fuel duty does not increase the amount people move about! How does increasing the cost of something mean more of it is consumed. If that were the case, then your best bet to decrease drinking would be to reduce the tax on it.

  13. Agreeing with fjfjfj, I don’t see where the methanol would be coming from, unless deliberately added. If what you distil is some kind of sugary or starchy solution which has been fermented by yeast, then the only alcohol in there will be ethanol, and thus the distillate will also only contain ethanol.

  14. ChrisM

    When I go to the supermarket I can choose between a bottle of fruit juice or a bottle of wine. Their relative prices are relevant to me. I can’t choose a bottle of wine from a different supermarket, in France, so I don’t care what it costs. That’s just how I think, your way is fine for you… but I feel bad for you, because you’ll never be satsified until you get the lowest global price on everything you buy.. and that’s no way to live.

    I don’t think fuel duty increases movement. Apologies, clumsy language again. Fuel allows people to move around, so if that’s a good thing, and more of it would come from lower duty, then that’s an argument for lower fuel duty.

    Despite what you say, I’m not buying the same argument for booze, and I don’t agree that “Society is improved by all those things that society wants, being cheaper”, because it disregards non-financial costs, and, in the present case, the indirect financial costs which fall on society.

  15. @ the boynoodle

    but I would strongly oppose a duty cut.. which we both seem to agree would necessarily increase other taxes

    Not necessarily. If the rate of duty is high enough to lead to people not paying it, (either by illegal methods, such as in Boston, or by legal methods, such as buying abroad for personal consumption) a cut in the rate could lead to higher, not lower revenues.

  16. the BoyNoodle
    Your original assertion was “The price of alcohol is incredibly low, even with the tax.”. Now you are changing that to “Their relative prices are relevant to me.” This is fine, but don’t pretend they are the same thing because they are not. If alcohol is (for arguments sake) half the price on the continent as it is in the UK, then it makes no sense to say alcohol is incredibly low just because you are comparing it to the price of fruit juice! This is another strange comparison anyway, because even cheap wine it more expensive than expensive orange juice. It makes as much sense as me saying it is incredibly expensive because I am comparing it with tap water.

    There is no need to feel bad for me, and you don’t really know me well enough to know what will satisfy me or what will fail to satisfy me. I simply pointed out the error in the way you were comparing the price of alcohol and so deeming it incredibly low. There is nothing in that that could give you any inkling as to what would make me happy or not.

    Saying “Society is improved by all those things that society wants, being cheaper” does not ignore non finacial costs, or at least it doesn’t need to. And of course in saying “the indirect financial costs which fall on society” you are doing exactly what you claim I am doing. You are only counting the financial costs, without counting the non-financial benefits.

    All of this is missing the main point of the article anyway which is that even if you do beleive that the cost of alcohol should be kept high in order to disuade people from using it, there comes a point where this does not work anyway.

  17. “When’s the last time you walked through a provincial British town centre on a Friday night?…The more tax levied on the people responsible, the less needs to be taken from everyone ”

    Before I finally abandoned the UK, I lived in the centre of one of those London ‘villages’ that consist of little more than restaurants,pubs & wine bars where people go for an evening out. Last time I looked at the police website there’d been 90 ‘anti-social incidents’ in a month in my short street alone.
    I now live in a part of Spain where these same people go for their holidays. A bottle of vodka in the supermarket’s less than £3. The resort towns have hundreds of bars & clubs. To encourage customers they’ll give you a free drink just to come in. It’d be entirely possible to spend an entire evening getting paralytic without spending a cent.
    Despite what you might have seen on some highly selective TV ‘reality’ shows our streets are not a sea of fighting drunks & vomit. Just a lot of high spirited but generally well behaved young people enjoying themselves. For that we can thank our smart, efficient, polite well organised police who along with their other talents are extremely visible.
    Back in London we were subject to what was described as response policing. That’s the kind where the squad car turns up just after the ambulance. I lived there for 12 years without seeing a single foot patrol after 8pm. One Saturday evening, when phoning to report an incident, I was told that the entire area only had two cars available for a population equivalent to a large county town. They’d been able to find 400+ officers to saturate the area during a football match a few hours earlier though & find 60 odd to check tax discs at a road block on the Seven Sisters Road the previous week.
    The alcohol tax you’re already paying is supposed to be going towards keeping those town centres orderly. What makes you think increasing it is going to equate to more being spent on policing where & when it’s needed?

  18. ChrisM, bloke in spain.

    theboynoodle asked me what my point was, I didn’t really have one except to mildly question his reasoning but you’ve made that point far more effectively.

  19. ChrisM

    I understand where you’re coming from. I think alcohol is cheap (in supermarkets and off licenses, at least – everything seems expensive in pubs, but nobody sane would argue that a pint of beer is fantastic value compared to a pint of coke.. duty is blamed for high pump prices, but a lack of it doesn’t lead to fair prices on soft drinks) and I think that the immense popularity of it is pretty good evidence that the market agrees.

    This is a subjective view, so whilst I’ve tried to contextualise it.. I don’t claim to have science and maths on my side. You may disregard my view at your leisure.

    I have not said anywhere that the duty should be higher. I think there’s a national alcohol problem, but I think that a cultural change is needed to deal with that, I don’t think a higher tax take will fix it – albeit that I do question whether alchol duty pays for the side-effects of alcohol consumption in the way that tobacco duty (as I understand it) does.

    I didn’t, as you claim, suggest that only the financial costs (direct and indirect) matter. I am aware that there are social costs and benefits.

    The premise of the original post was that people who engage in moonshing do so because duty is too high. My point was that the market, on the whole, disagrees.. and that, even so, it’s something of a leap to suggest that those who produce illicit booze do so because of duty and not because of all the other costs that make up the ticket price on a bottle of vodka. That strikes me as interpreting events to suit a specific agenda.

    Finally, the people who did the moonshing… who thought that they could do it cheaper and beat the system… well they’re dead now. They, as do most who manufacture illicit booze, did more than just try to cut out the taxman.

  20. theBoyNoodle

    These things always operate at the margins. There is no set rate at below which there will be no home brewing/stilling/smuggling etc. The premise is that as the tax rate increases we will see more home brewing/stilling/smuggling. The rate at which duty is “too high” depends on what you are trying to acheive.
    If you are trying to maximise revenue, the rate is too high when the treasury starts to lose money because people either reduce their intake, or take other avoidance actions. If you are trying to reduce other harms, it is too high when eg criminals can produce and sell the item in question cheaper than legal outlets, and when people are prepared to take the risk of drinking possibly tainted product rather than pay the atx. No matter what your aim is, there is some point at which duty is too high.

    ” it’s something of a leap to suggest that those who produce illicit booze do so because of duty and not because of all the other costs that make up the ticket price on a bottle of vodka.”

    No one was sugeesting that though. Of course they do it because of the overall cost. However, it is the tax portion which has been rising rapidly. It is also the tax portion which the government is responsible for. Companies would not price something so high that their bottom line suffers.

    “Finally, the people who did the moonshing… who thought that they could do it cheaper and beat the system… well they’re dead now. ”

    You seem like a decent guy, but I have to say this is a fairly misanthropic comment. I am not even sure what point you are making here. That death is what people who distill deserve? This seems a little harsh. In any event, it is wrong. This shows that “some” people who tried to beat the system died. It hardly shows that everyone who distills will die.

  21. ChrisM

    My apologies, the closing comment was facetious at best. I guess the point was to emphasise that the activity was about much more than tax evasion.

    I entirely agree that there’s a laffer curve, but we shouldn’t be seen to over-simplify. We can just as easily say that bootlegging is a reaction to the profits of producers and retailers.

    Tim’s logic journey began with “That people are homebrewing might be an indication that taxes are too high”.. but quickly progressed to “tax evasion is proof that the people doing the tax evading think tax rates are too high”. When retired accountants for Wandsworth move from personal suppositions to sweeing statements about attitudes to tax they are given something of a pasting around here. This was a bit too close to that sort of thing for my palate.

  22. theBoyNoodle

    I didn’t really think that is what you felt and I am glad to hear it is not.

    There are costs involved in producing booze (or indeed anything else) regardless of whether a producer is legitimate or not. They then have to sell at a price which at the very least covers their costs. Tax is part of the legitimate producer’s costs, but not part of the illegitimate producers costs. The more tax there is, the greater the advantage the illegitimate producer has over the legitamate producer.

    When Tim said “tax evasion is proof that the people doing the tax evading think tax rates are too high” I took this to be a turn of phrase rather than stating what literally went on in the minds of those buying/selling the moonshine. ie regardless of what the people in question thought, their actions were empirical evidence that rates are too high.

  23. When Tim said “tax evasion is proof that the people doing the tax evading think tax rates are too high” I took this to be a turn of phrase rather than stating what literally went on in the minds of those buying/selling the moonshine. ie regardless of what the people in question thought, their actions were empirical evidence that rates are too high

    No, it’s empirical evidence that criminals will engage in criminal activity if they have the opportunity to do so. That is not the same as saying that ‘rates are too high’.

  24. No, the opportunity to engage in (this) criminal activity is the same regardless of the tax rate. It is the motive to engage in (this) criminal activity which varies according to tax rate.

    If a tax rate is high enough that it motivates lots of (this) crime, then this is evidence that rates are too high.

  25. No, the opportunity to engage in (this) criminal activity is the same regardless of the tax rate. It is the motive to engage in (this) criminal activity which varies according to tax rate

    The degree to which it happens is related to the costs of the legitimate product, just as the degree of software piracy is related of the costs of the licensed product. But the existence of criminality does not mean that taxes are too high or software is too expensive. The original remark was immature and provocative. I am sure that neither you nor Wosdthall would accept the crimes of an arbitrary shop lifter or software pirate as ‘evidence’ things were too expensive in shops or that software was too expensive.

  26. You are not comparing like crimes.
    Whether this is dishonesty or a simple inability to see the important differences I don’t know.

    We vary tax rates all the time we do not vary the laws on shoplifting all the time.

    No sane person debates on whether we should have laws against stealing, people debate tax rates all the time.

  27. “The original remark was immature and provocative.”

    I am not sure which original remark you are referring to, but insulting someone you are having a discussion with could be taken as provocative.

  28. ChrsiM.

    bviously the original remark I was referring to was the one in which Worsthall used an example of arbitrary criminality, to wit an illegal still, to push a predictable point about taxes on booze. If there were illegal stills all over the country and these were making significant inroads into legal sales then he might have a point. They aren’t and he doesn’t.

    Not sure what has got you on your high horse so suddenly to start spluttering about ‘dishonesty’.

    No sane person debates on whether we should have laws against stealing, people debate tax rates all the time

    Don’t be so achingly literal. It was satire.

  29. You are easily provoked if someone saying duty is too high is provocative.

    It wasn’t very good satire. Satire is supposed to make a point. Comparing two things that neither I – nor apparently you – think are similar seems a bizzare sort of satire.

    I started “spluttering” about dishonesty because I thought likening illegal stills with theft was a dishonest comparison – dishonest because you probably realise they are not really comparable.

    Illegal sales ARE making significant inroads into legal sales, albeit that stills are not the main cause of this. Alcohol brought back from booze cruises and the like account for a not insignificant amount of alcohol sales.

  30. You are easily provoked if someone saying duty is too high is provocative

    And you are every easily convinced if you think that the discovery of an isolated vodka still is evidence that taxes on alcohol are too high. Come back when you have evidence that sales of legal alcohol are being significantly eroded thanks to illegal manufacture.

    It wasn’t very good satire. Satire is supposed to make a point. Comparing two things that neither I – nor apparently you – think are similar seems a bizzare sort of satire

    It did make a point. If you can’t see it then I am sure I shall find the strength to carry on.

    I started “spluttering” about dishonesty because I thought likening illegal stills with theft was a dishonest comparison – dishonest because you probably realise they are not really comparable

    Sigh. That wasn’t the comparison that was being made. The comparison was with various forms of self serving justification not with making a literal comparison between shoplifting and illegal distillery. Do you really need this explained to you?

    Illegal sales ARE making significant inroads into legal sales, albeit that stills are not the main cause of this

    They aren’t a significant issue at all.

    Alcohol brought back from booze cruises and the like account for a not insignificant amount of alcohol sales

    Which isn’t illegal if brought back for personal consumption and has zero relevance to an illegal still in Lincolnshire.

  31. And you are every easily convinced if you think that the discovery of an isolated vodka still is evidence that taxes on alcohol are too high. Come back when you have evidence that sales of legal alcohol are being significantly eroded thanks to illegal manufacture.

    The story was a hook to hang the point on. To many people this would be obvious.

    It did make a point. If you can’t see it then I am sure I shall find the strength to carry on.

    It clearly didn’t if I didn’t get the point!

    Sigh. That wasn’t the comparison that was being made. The comparison was with various forms of self serving justification not with making a literal comparison between shoplifting and illegal distillery. Do you really need this explained to you?

    Clearly you are too subtle for me. When you compared illegal stills with theft, I thought you were comparing illegal stills with theft.

    They aren’t a significant issue at all.
    The treasuary disagrees.

    Which isn’t illegal if brought back for personal consumption and

    “Alcohol brought back from booze cruises and the like account for a not insignificant amount of alcohol sales”

    What part of the word “sales” is confusing.

    has zero relevance to an illegal still in Lincolnshire.

    But does have relevance to the topic which includes tax rates on alochol.

  32. and, whilst being far from a puritan, I don’t think that the alcohol industry does much good for society

    If you believe that, you’re definitely a puritan. Most people drink alcohol because they like it – in other words, because they feel that the benefits of consuming it are greater than the cost of buying it. Who the hell are you to say that they’re wrong?

    (a small minority of drinkers are physically addicted to ethanol, but that is not the main driver of alcohol consumption).

  33. Going back to theboynoodle’s 1st reply, that “You can’t slice one element of the price out and put all the blame there”, surely it’s alcohol price increases that have made bootlegging more attractive.

    Which element have those price increases largely come from? Exactly – tax increases. Tim is spot on.

  34. @ john b

    People can do what they like, where it doesn’t harm me or anyone else I’ve no business saying that they are wrong. Frankly, I don’t care. I said that I don’t think that the ‘alcohol industry’ does much good for society. Yes.. they produce a product that millions happily enjoy, but they also aggressively and cynically market a dangerous drug at young and vulnerable people for profit.

    I don’t want to close it down or drown it in regulation, and I don’t blame it for making a shiny dollar or two from hoovering up whatever is left in the purses if it’s millions of less afluent customers at the end of the week… but that doesn’t mean I think it’s a good thing.

    @Ray Rigby
    Nonsense. The customer is only interested in the price on the sticker… not in what order the elements were compiled.

    Of course, if the price of something is £1.00, and the price at which someone will illegally make his own alternative is £1.05, then a new 10p tax would drive that illegal activity. But so would a 10p increase in input costs or distribution costs. It takes more than one straw to break a camel’s back, and people shouldn’t pay so much attention to the last one added.

  35. @ theboynoodle “It takes more than one straw to break a camel’s back, and people shouldn’t pay so much attention to the last one added.”

    It isn’t just the last of many straws added though, is it.

    According to the ‘Institute of Alcohol Studies’:-“revenue to the Exchequer for alcohol is
    substantial and has been increasing for most of the last 30 years, though there was a small decrease in 2005/6.”

    Have increasing input and distribution costs caused a comparable rise in the sticker price over 30 years? Don’t think so.

Leave a Reply

Your email address will not be published. Required fields are marked *