    District of Columbia: Taxes and Other Strategies to Reduce Alcohol Abuse
    (Letter Report, 05/19/1998, GAO/GGD/HEHS-98-140).

    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.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  GGD/HEHS-98-140
         TITLE:  District of Columbia: Taxes and Other Strategies to Reduce
    	     Alcohol Abuse
          DATE:  05/19/1998
       SUBJECT:  Alcohol taxes
    	     Alcohol or drug abuse problems
    	     Teenagers
    	     Municipal governments
    	     Price regulation
    	     Inflation
    	     Comparative analysis
    IDENTIFIER:  District of Columbia
    	     Consumer Price Index

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    GAO/GGD/HEHS-98-140

    Cover
    ================================================================ COVER

    Report to Congressional Committees

    May 1998

    DISTRICT OF COLUMBIA - TAXES AND
    OTHER STRATEGIES TO REDUCE ALCOHOL
    ABUSE

    GAO/GGD/HEHS-98-140

    Taxes and Other Strategies to Reduce Alcohol Abuse

    (268833, 108355)

    Abbreviations
    =============================================================== ABBREV

      ABC - Alcohol Beverage Control
      APRA - Addiction Prevention and Recovery Administration
      BAC - blood alcohol concentration
      DISCUS - Distilled Spirits Council of the United States
      MLDA - minimum legal drinking age
      NIAAA - National Institute on Alcohol Abuse and Alcoholism
      PRC - Prevention Research Center
      SAMHSA - Substance Abuse and Mental Health Services Administration
      SAPE - Substance Abuse Prevention Education

    Letter
    =============================================================== LETTER

    B-279037

    May 19, 1998

    The Honorable Robert Byrd
    Ranking Minority Member
    Committee on Appropriations
    United States Senate

    The Honorable Lauch Faircloth
    Chairman
    The Honorable Barbara Boxer
    Ranking Minority Member
    Subcommittee on the District of Columbia
    Committee on Appropriations
    United States Senate

    The Honorable Charles H.  Taylor
    Chairman
    The Honorable James P.  Moran
    Ranking Minority Member
    Subcommittee on the District of Columbia
    Committee on Appropriations
    House of Representatives

    Alcohol abuse and alcohol dependence create major health problems and
    social and economic consequences in the United States.  They not only
    cost the nation billions of dollars annually in health care costs and
    reduced or lost productivity, they also contribute to homicides,
    rapes, and other violent crimes; risky sexual behavior; traffic
    crashes; injuries; and premature deaths.  From 1986 to 1990, the
    District of Columbia's average annual rate of alcohol-related deaths
    was almost twice as high as the national rate.  Alcohol use by
    adolescents is of particular concern, because in addition to causing
    immediate problems, it can lead to a lifelong pattern of alcohol
    misuse.  Over one-third of District of Columbia high school students
    surveyed in 1995 reported they had drunk alcohol in the last 30 days,
    and 13 percent reported episodic heavy drinking.

    The Fiscal Year 1998 District of Columbia Appropriations Act mandated
    us to study issues relating to the taxation and regulation of
    alcoholic beverages in the District.  Accordingly, in this report,
    our objectives were to

    (1) compare the District's taxes on alcoholic beverages with those of
    surrounding jurisdictions and other states;

    (2) determine whether the District's alcoholic beverage tax structure
    can be brought into closer conformity with those in surrounding
    jurisdictions;

    (3) determine how much higher the District's alcohol excise tax rates
    would be if they had been indexed for inflation;

    (4) determine whether existing empirical research indicates that
    raising the District's alcohol taxes is likely to reduce alcohol
    abuse, particularly among youths, and related health problems;

    (5) identify which states earmark their alcohol taxes for specific
    purposes; and

    (6) describe characteristics of effective alcohol prevention programs
    and regulatory policies, especially with regard to youth, that the
    District government could consider adopting.

       BACKGROUND
    ------------------------------------------------------------ Letter :1

    Although about 60 percent of the U.S.  population drinks alcoholic
    beverages without serious consequences, the misuse of alcohol by
    another 10 percent of the population has significant negative effects
    on the social, economic, and health status of both those who abuse it
    and society at large.  According to the National Institute on
    Alcoholism and Alcohol Abuse (NIAAA), about 14 million Americans meet
    the medical diagnostic criteria for alcohol abuse or alcoholism, and
    an estimated 100,000 alcohol-related deaths occur each year.  About
    half of the nation's high school students report current alcohol use,
    a significant minority drink heavily, and few have difficulty
    obtaining alcohol.  The younger the age of drinking onset, the
    greater the chance that an individual will develop a clinically
    defined alcohol disorder at some point in life.

    All states heavily regulate the sale of alcoholic beverages.  Some
    states take a more direct approach to controlling sales than others.
    Eighteen states, including Virginia, are generally referred to as
    "control" states, because the final sale to consumers of, typically,
    liquor and in some cases wine and beer as well can occur only in
    state-operated stores at prices established by state beverage control
    boards.\1 State-operated stores are the exclusive retailers of all
    legal liquor sold for off-premises consumption throughout Virginia.
    Final prices are set by Virginia's Department of Alcohol Beverage
    Control (ABC).\2

    The District of Columbia and the remaining 32 states, including
    Maryland, are referred to as "license" states, because the
    distribution and sale of alcoholic beverages is carried out by
    private license holders.  Maryland, however, is not completely a
    license state, because 1 of its 22 counties--Montgomery County, which
    borders the District--is a control jurisdiction.  The county
    Department of Liquor Control is the exclusive wholesaler of all
    alcoholic beverages sold within its boundaries.  The Department is
    also the exclusive retailer of liquor sold for off-premises
    consumption.

    To raise revenue and to help prevent alcohol misuse, most states and
    the District of Columbia levy both excise taxes and retail sales
    taxes on alcoholic beverages.  Some county and city governments also
    impose their own alcohol taxes.  In order to determine whether the
    District's taxes on alcohol are greater or less than those in
    surrounding jurisdictions and other states, one needs to compare the
    District's combined--sales and excise--tax structure with the tax
    structures in the other jurisdictions.  Such a comparison is
    complicated by the fact that alcohol excise tax rates are generally
    stated as fixed amounts per unit of volume, but sales tax rates are
    almost always ad valorem (stated as percentages of product prices).
    The combined tax burden within a given jurisdiction will vary by
    type, size, and value of beverage and, in some cases, by type of
    retail establishment.\3

    It is also difficult to compare the alcohol tax systems in license
    jurisdictions with those in control jurisdictions.  In a license
    state, private sector wholesalers determine wholesale prices, taking
    into account their costs, including the excise taxes that they pay to
    the state.  Private sector retailers charge their own mark-ups on top
    of those wholesale prices.  For these states, one can readily
    determine what share of the final price of the alcoholic beverage is
    attributable to the excise tax.

    In a control state such as Virginia, where the government acts as a
    monopoly wholesaler and retailer of liquor, the government collects
    revenue from the sale of alcohol in two ways:  (1) by earning the
    profits that private sector wholesalers and retailers would otherwise
    have earned and (2) by imposing an excise tax on the alcohol.  One
    cannot easily determine how much of the combined revenue that the
    state collects should be considered the profits of the state's
    alcohol sales operations and how much should be considered an excise
    tax.  The state may make a distinction between the price mark-up that
    it charges and the excise tax that it levies, but this distinction
    has little meaning to consumers or taxpayers.  There is a wide range
    of mark-up/excise tax rate combinations that the state could have set
    to yield the same amount of revenue and impose the same costs on
    consumers.

    One way to define an "effective" excise tax rate on alcohol in a
    control state is to say that it equals the statutory excise tax rate,
    plus any cost that the state control system imposes on consumers
    above what those consumers would have borne if that system were not
    in place.\4 For example, if a state-run store imposes a higher
    mark-up than a private dealer would have, then this additional cost
    to consumers can be considered part of the effective tax.  The
    effective tax rate defined in this manner provides a better basis for
    comparison with the excise tax rates imposed in license states.

    --------------------
    \1 This classification of states as either "control" or "license"
    states is made by the Distilled Spirits Council of the United States
    in its publication, "Summary of State Laws and Regulations Relating
    to Distilled Spirits," 29th edition, 1996.  The main categories of
    alcoholic beverages are beer, wine, and distilled spirits.  The term
    "liquor" is used in this report to mean distilled spirits.

    \2 Beer and wine for off-premises consumption are sold by licensed
    private stores.  Private establishments that serve alcoholic
    beverages for on-premises consumption must buy their liquor, but not
    their beer or wine, from a state store.  Appendix I provides details
    on Virginia's and Montgomery County's pricing practices.

    \3 We use the term "tax burden" to mean the share of tax in the final
    cost of the beverage.

    \4 By an "effective" tax rate we mean one that takes into account
    other provisions of the law or other government policies, which are
    not reflected in the statutory tax rates, that (1) impose an
    additional cost on taxpayers and (2) raise revenue for the
    government.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :2

    Compared to the taxes levied in nearby Virginia jurisdictions, the
    District's combined tax rates are higher for almost all beers and for
    relatively high-priced wines, but the opposite is true for relatively
    low-priced wines.  Compared to the taxes levied in all Maryland
    counties except Montgomery County, the District's combined sales and
    excise tax rates are higher for all types of alcoholic beverages.
    Effective tax rates on controlled beverages sold exclusively through
    government-run stores in Virginia and Montgomery County, Maryland,
    may differ from statutory tax rates, so it is not possible to make
    precise comparisons with the District's statutory tax rates for these
    items.  Although the District's excise taxes on alcoholic beverages
    are lower than those in most of the 50 states, the District's
    combined tax rates on beer and wine are higher than those in most
    states, because its sales tax is among the highest.  The District's
    combined taxes on liquor are higher, for at least some items, than in
    most of the states for which we could make comparisons readily.

    The District cannot conform its alcohol tax structure to those in all
    surrounding jurisdictions at the same time, because the tax
    structures among those neighboring jurisdictions differ
    significantly.  Moreover, the District would not be able to impose
    exactly the same effective tax rates as those in either Virginia or
    Montgomery County, because those rates are difficult to estimate
    precisely, might change frequently, and are likely to vary across
    beverage items.\5 The District also would have difficulty enforcing
    an ad valorem liquor excise tax like Virginia's, which it would have
    to collect from private retailers.  Virginia does not face
    enforcement problems, because it collects the tax from its state-run
    stores.

    Although the District's per-unit excise tax rates have declined in
    inflation-adjusted terms since they were last changed, increases in
    the District's ad valorem special sales tax rates on all alcoholic
    beverages have, to date, more than compensated for the lack of
    indexation of the excise tax rates.  The District's alcohol excise
    taxes will continue to decline gradually in inflation-adjusted terms
    as long as inflation continues and excise taxes remain unchanged.  In
    order to keep the real value of its combined tax rates on alcohol
    close to what they are currently, the District would have to increase
    its excise or sales tax rates periodically, in step with inflation.

    Taxes on alcohol are a means of reducing alcohol misuse while at the
    same time raising revenue.  Economic theory and empirical evidence
    indicate that (1) higher alcohol taxes lead to higher consumer prices
    for alcoholic beverages, and (2) higher prices reduce alcohol
    consumption.  Furthermore, higher alcohol taxes and prices have been
    associated with declines in drunken driving, motor vehicle
    fatalities, rapes, and robberies.  Increases in the District's
    alcohol taxes are thus likely to reduce alcohol use, particularly
    among youths, but the special geographic circumstances of the
    District--where all of its suburbs are in other jurisdictions--could
    weaken these effects.  As of 1993, 24 states earmarked at least a
    portion of their alcohol excise tax revenues for specific purposes,
    15 of them directing their use to alcohol treatment, substance abuse,
    and/or mental health programs.

    Research on other alcohol prevention strategies has not adequately
    demonstrated the effectiveness of many common techniques and
    programs.  Most programs to educate individuals and build their
    resistance skills have not been evaluated rigorously or over a
    sufficient length of time to determine their effectiveness.  Although
    evaluations have shown that some recent efforts to combine those
    programs with strategies that focus on legal and regulatory controls
    have been effective, evaluations of other similar studies are still
    under way.  More rigorous evaluations of prevention strategies and
    programs could provide better information about which approaches are
    most likely to succeed.

    The best current evidence suggests that several legal and regulatory
    strategies, when enforced, can reduce illegal drinking and
    alcohol-related problems.  According to researchers and local
    government officials, visible enforcement coupled with education
    about these laws and regulations should create a stronger deterrent
    effect.  Officials in the District of Columbia and other local
    jurisdictions have tried innovative enforcement techniques they
    believe were successful, although formal evaluations have not been
    done.  Budget and staffing constraints have stymied full
    implementation of these strategies.  The District also funds and
    operates a variety of alcohol abuse prevention and treatment
    programs.

    --------------------
    \5 By a "beverage item" we mean a specific beverage type (beer, wine,
    Scotch, gin, etc.); brand; and container size.

       OBJECTIVES, SCOPE, AND
       METHODOLOGY
    ------------------------------------------------------------ Letter :3

    To meet our first two objectives of (1) comparing the District's
    taxes on alcoholic beverages with those of surrounding jurisdictions
    and other states and (2) determining whether the District's tax
    structure can be brought into closer conformity with the tax
    structures in surrounding jurisdictions, we reviewed the relevant
    laws and regulations of the various jurisdictions.  We also
    interviewed officials from the District's Office of Tax and Revenue
    and from the alcohol beverage control commissions in the District;
    Montgomery County, Maryland; and Virginia.  We also obtained alcohol
    tax information for the 50 states from the Federation of Tax
    Administrators and the Distilled Spirits Council of the United States
    (DISCUS).  In an effort to determine whether the pricing policies of
    Montgomery County and Virginia result in effective tax rates that are
    higher than the statutory tax rates for certain alcoholic beverages,
    we obtained lists of the wholesale prices that Montgomery County
    charges on all of the alcoholic beverages that it sells to retailers
    in the county and lists of the wholesale prices for wine and liquor
    that private sector wholesalers charge retailers in the remainder of
    Maryland.  The latter prices are published in the Maryland Beverage
    Journal.  We compared Montgomery County's prices (effective during
    January 1998) to those of the private wholesalers for (1) 14 liquor
    items identified by the Virginia ABC Commission or DISCUS as top
    sellers, (2) a random sample of an additional 28 liquor items from
    Montgomery County's price list, and (3) a random sample of 29 wine
    items from the county's price list.  We could not make a comparison
    of beer wholesale prices, because the state of Maryland requires
    publication of only liquor and wine wholesale prices, not beer
    prices.

    As one possible way to determine whether Virginia's controlled prices
    for liquor are, on average, higher than the competitive market prices
    in the same region, we considered doing a survey comparing prices in
    Virginia with those in the District and its Maryland suburbs for the
    top-selling liquor items.  However, representatives of the District's
    Alcohol Retailers Association told us that a common retail pricing
    practice is to sell selected popular items at a large discount,
    possibly even at a loss, in order to attract customers who will then
    also buy items that have higher price mark-ups.  For this reason, a
    survey limited to just the best-selling items would probably be
    misleading.  The retailers' representatives also indicated that it
    would be very difficult to obtain good estimates of the average
    prices in each jurisdiction, because there are so many different
    brands and bottle sizes, and the prices for each item are likely to
    vary considerably across different types of retail outlets in each
    jurisdiction.  It was beyond the scope of this study to undertake the
    extensive retail price survey and analysis needed to make such
    estimates.

    To determine how much higher the District's alcohol excise tax rates
    would be if they had been indexed for inflation, we raised these
    rates by the same percentage increase as the average increase in
    alcoholic beverage prices since the last time each rate was changed.
    To compute the average price increases, we used the U.S.  Department
    of Labor's quarterly Consumer Price Index alcoholic beverage
    component for the Washington metropolitan area.  We also compared the
    combined--excise and sales--tax burdens on typical alcoholic
    beverages over time.

    To determine whether existing empirical research indicates that
    raising the District's alcohol taxes is likely to reduce alcohol
    abuse, particularly among youths, and related health problems, we
    reviewed and summarized several surveys of the relevant academic
    literature that have been published in recent years.  We then
    obtained comments on our summary from five academic and government
    experts in this field of research and modified our summary to reflect
    those comments.

    To identify which states earmarked their alcoholic taxes for specific
    purposes, we used the latest summarization of state tax earmarking
    prepared by the National Conference of State Legislatures.  The
    latest available earmarking information is for fiscal year 1993.  We
    did not independently verify the accuracy of this information.

    To describe the characteristics of alcohol prevention programs and
    legal and regulatory strategies that researchers have deemed
    effective, we identified and reviewed selected literature on alcohol
    prevention research and evaluated syntheses of research literature.
    Given the vast literature on this subject and the time available to
    us, we relied heavily on information presented in NIAAA's 1997
    publication, Alcohol and Health.\6 We also interviewed key officials
    responsible for overseeing alcohol prevention research for youth and
    other populations at NIAAA.  To obtain information on the District of
    Columbia's alcohol laws and regulations, we interviewed the Executive
    Director of the D.C.  Alcoholic Beverages Control Board, reviewed
    relevant provisions of the District of Columbia's codes and municipal
    regulations, and examined reports provided by the Board.  To obtain
    information on how the District's alcohol laws are being enforced, we
    interviewed responsible officials of the D.C.  Metropolitan Police
    Department.  We obtained similar information from officials
    responsible for managing and enforcing alcoholic beverage programs in
    Montgomery and Prince George's Counties in Maryland and the City of
    Alexandria and Arlington County in Virginia.  To obtain information
    on the District's health and education prevention programs, we
    interviewed officials at the Department of Health's Addiction
    Prevention and Recovery Administration and the District of Columbia
    Public Schools and reviewed key agency documents.

    We conducted our review in Washington, D.C.; Virginia; and Maryland
    between December 1997 and April 1998 in accordance with generally
    accepted government auditing standards.  We requested comments on a
    draft of this report from the District of Columbia's Office of Tax
    and Revenue, Department of Consumer and Regulatory Affairs, and
    Department of Health; the District of Columbia Financial
    Responsibility and Management Assistance Authority; the Virginia
    Department of Alcohol Beverage Control; NIAAA; the Substance Abuse
    and Mental Health Services Administration (SAMHSA); and the
    Prevention Research Center (PRC).  These comments are summarized and
    discussed near the end of this letter.  We also requested comments
    from the Montgomery County Department of Liquor Control but did not
    receive any in time to include them in this report.

    --------------------
    \6 NIAAA, "Prevention of Alcohol Problems," Chapter 9 of Alcohol and
    Health:  Ninth Special Report to the U.S.  Congress, U.S.  Department
    of Health and Human Services, June 1997, pp.  301-327.

       THE DISTRICT'S COMBINED TAX
       RATES ARE HIGHER THAN ITS
       NEIGHBORS' RATES FOR SOME
       BEVERAGES BUT NOT FOR OTHERS
    ------------------------------------------------------------ Letter :4

    The interaction of the sales taxes and the excise taxes within each
    jurisdiction results in combined tax burdens that vary by type, size,
    and value of beverage and, in some cases, by type of retail
    establishment.  We computed the combined statutory taxes paid in each
    jurisdiction on a range of different beverage items.  In comparison
    to the taxes levied in all but one Maryland county, the District's
    combined statutory tax rates are higher for all types of alcoholic
    beverages.  In comparison to the taxes levied in adjacent Virginia
    jurisdictions, the District's combined statutory tax rates are higher
    for almost all beers and for relatively high-priced wines, but the
    opposite is true for relatively low-priced wines.  The effective tax
    rates on liquor in Virginia and on all alcoholic beverages in
    Montgomery County may differ from the statutory tax rates as a result
    of government controls over prices.  Consequently, precise
    comparisons of the taxes on those controlled items cannot be made.

          THE DISTRICT'S COMBINED
          STATUTORY TAX RATES ON BEER
          AND SOME WINES ARE THE
          HIGHEST IN THE AREA
    ---------------------------------------------------------- Letter :4.1

    The statutory alcohol excise tax rates levied by the District and the
    state of Maryland are very similar, as shown in table 1.\7 Virginia's
    excise taxes on beer and wine are significantly higher than those in
    the District and Maryland.  Virginia's liquor tax is not directly
    comparable to taxes in the other two jurisdictions�both because it
    has an ad valorem rate and because the state sets the price upon
    which the tax is computed.  There are no local government alcohol
    excise taxes in either Maryland or Virginia.\8

                                         Table 1

                          Statutory Taxes on Alcoholic Beverages
                           Imposed by the District of Columbia,
                                  Maryland, and Virginia

                                                                       Sales   Sales
                                                                         tax     tax
                    Beer excise     Wine excise     Liquor excise      (off-    (on-
    Jurisdictions   rates           rates           rates              site)   site)
    --------------  --------------  --------------  ----------------  ------  ------
    District of     $.09/gal.       $.30/gal.       $1.50/gal.            8%     10%
    Columbia                        (alcohol 14%
                                    or less)
                                    $.40/gal.
                                    (alcohol over
                                    14%)
                                    $.45/gal.
                                    (sparkling
                                    wine)

    Maryland        $.09/gal.       $.40/gal.       $1.50/gal.\a          5%      5%

    Virginia        $.283/gal.      $1.51/gal       20% tax on the    4.5%\c  4.5%\d
                    (in 12 oz.                      sum of supplier
                    bottles)\b                      price, including
                                                    a handling
                                                    charge, plus a
                                                    mark-up
    --------------------------------------------------------------------------------
    \a For liquor over 100 proof, $.015 is added for each proof point
    over 100.

    \b Virginia tax rate varies by container size.  For example, the rate
    per gallon for beer in barrels is $.2565.

    \c The statewide rate is 3.5 percent, but local governments can
    choose to have the state collect an additional 1 percent, which is to
    be returned to those local governments.  Arlington and Fairfax
    Counties and the City of Alexandria have all chosen this option.

    \d Does not include local "meal taxes" (on alcoholic beverage served
    separately or with meals) of 4 percent in Arlington County and 3
    percent in the City of Alexandria.  Fairfax County has no such tax.

    Sources:  Excise and sales taxes from District of Columbia and state
    tax codes.  "Meal tax" rates from telephone communications with
    Treasurers' offices of the several jurisdictions.

    The District imposes an 8 percent sales tax on alcoholic beverages
    sold for off-premises consumption; it levies a 10-percent tax on
    alcoholic beverages and food sold for on-premises consumption.  These
    rates are higher than the 5.75-percent rate the District imposes on
    the sales of most goods.  They are also significantly higher than
    Maryland's and Virginia's sales taxes.\9

    The interaction of the sales taxes and the excise taxes within each
    jurisdiction results in combined tax burdens that vary by type, size,
    and value of beverage and, in some cases, by type of retail
    establishment.  In order to compare the combined statutory tax
    burdens on alcohol across jurisdictions, we have computed the taxes
    that would be paid on three beverage items sold for off-premises
    consumption and on three items sold for on-premises consumption.  In
    order to demonstrate the importance of prices in the calculation of
    combined tax burdens, we used a wide range of prices for each
    beverage item.  (See tables 2 and 3.)

                                         Table 2

                             Combined Taxes Paid on Selected
                         Alcoholic Beverage Items in the District
                          and Surrounding Jurisdictions for Off-
                                   Premises Consumption

                                        Beer (six-     Wine (750-ml     Liquor (1-
                                          pack)          bottle)      liter bottle)
                                      --------------  --------------  --------------
    Pre-sales tax price (a low-
    price and a high-price example
    for each beverage)                 $4.00   $7.00   $4.00  $12.00   $8.00  $30.00
    --------------------------------  ------  ------  ------  ------  ------  ------
    District of Columbia
    excise tax                           .05     .05     .06     .06     .40     .40
    sales tax                            .32     .56     .32     .96     .64    2.40
    ================================================================================
    Combined tax                         .37     .61     .38    1.02    1.04    2.80
    Maryland
    excise tax                           .05     .05     .08     .08     .39     .39
    sales tax                            .20     .35     .20     .60     .40    1.50
    ================================================================================
    Combined tax                         .25     .40     .28     .68     .79    1.89
    Virginia
    excise tax                           .16     .16     .30     .30    1.33    5.00
    sales tax                            .18     .32     .18     .54     .36    1.35
    ================================================================================
    Combined tax                         .34     .48     .48     .84    1.69    6.35
    --------------------------------------------------------------------------------
    Note:  The price shown at the top of each column is the pre-sales
    tax, or "shelf," price for the item.  This price already reflects
    federal and state or District excise taxes.  The first price for each
    beverage items is meant to represent the price for a relatively
    inexpensive brand; the second price represents that of a relatively
    expensive brand.  These prices are not meant to represent the
    absolute lowest and highest prices likely to be found in the
    Washington metropolitan area.

    Source:  GAO computations based on information from the state and
    District of Columbia tax codes.

                                         Table 3

                             Combined Taxes Paid on Selected
                         Alcoholic Beverage Items In the District
                          and Surrounding Jurisdictions for On-
                                   Premises Consumption

                                       Beer (12-oz      Wine (6-oz     Liquor (2-oz
                                         bottle)          glass)          shot)
                                      --------------  --------------  --------------
    Pre-sales tax price (a low-
    price and a high-price example
    for each beverage)                 $2.00   $4.00   $2.00   $4.00   $2.00   $7.50
    --------------------------------  ------  ------  ------  ------  ------  ------
    District of Columbia
    Excise tax                           .01     .01     .01     .01     .02     .02
    Sales tax                            .20     .40     .20     .40     .20     .75
    ================================================================================
    Combined tax                         .21     .41     .21     .41     .22     .77
    Maryland
    Excise tax                           .01     .01     .02     .02     .02     .02
    Sales tax                            .10     .20     .10     .20     .10     .38
    ================================================================================
    Combined tax                         .11     .21     .12     .22     .12     .40
    Virginia
    Excise tax                           .03     .03     .07     .07     .08     .30
    Sales tax\a                          .17     .34     .17     .34     .17     .64
    ================================================================================
    Combined tax                         .20     .37     .24     .41     .25     .94
    --------------------------------------------------------------------------------
    Note:  The price shown at the top of each column is the pre-sales
    tax, or "shelf," price for the item.  This price already reflects
    federal and state or District excise taxes.  The first price for each
    beverage items is meant to represent the price for a relatively
    inexpensive brand; the second price represents that of a relatively
    expensive brand.  These prices are not meant to represent the
    absolute lowest and highest prices likely to be found in the
    Washington metropolitan area.

    \a The Virginia sales tax rate that we use in this table is 8.5
    percent, which includes the 4.5 percent state tax plus the 4 percent
    meals tax in Arlington County.  In the City of Alexandria the total
    sales tax rate is 7.5 percent, and in Fairfax County it is 4.5
    percent.

    Sources:  GAO computations based on data from the state and District
    of Columbia tax codes and Treasurers' offices of surrounding
    jurisdictions.  The District's combined statutory taxes on alcohol
    are higher than those levied in adjacent Maryland counties for all
    types of beverages and across all the price ranges that we examined.

    The District's combined taxes on beer are also higher than those in
    adjacent Virginia jurisdictions.  In contrast, Virginia's combined
    statutory taxes on liquor are higher than those in the District
    across the full range of prices we examined.  For wine, Virginia's
    combined taxes are higher than the District's, except at the high end
    of the price range.\10

    --------------------
    \7 The statutory tax rates in table 1 and the combined tax burdens in
    tables 2 and 3 do not reflect any effects that the alcohol control
    systems in Montgomery County or Virginia may have on the final prices
    of alcoholic beverages.

    \8 The Maryland Code allows one exception for Garrett County to tax
    beer.

    \9 Alcoholic beverages in those two states are subject to the basic
    sales tax rates.  Some Virginia jurisdictions neighboring the
    District levy their own "meal taxes," which cover alcoholic beverages
    consumed on-premises.  Arlington County's meal tax is 4 percent and
    the City of Alexandria's tax is 3 percent, so the total on-premises
    sales tax rates in those two jurisdictions are 8.5 percent and 7.5
    percent.

    \10 In table 3, the combined taxes that we show for Virginia are
    those in effect in Arlington County, the jurisdiction having the
    longest border with the District.  The combined taxes in the City of
    Alexandria and in Fairfax County are lower than those in Arlington
    County.

          GOVERNMENT PRICE MARK-UPS
          MAY ALTER THE "EFFECTIVE"
          TAX RATES ON ALCOHOL
    ---------------------------------------------------------- Letter :4.2

    The monopoly power that the governments of Virginia and Montgomery
    County have over the sale of some alcoholic beverages within their
    boundaries provides them with an opportunity to set prices for those
    beverages to achieve objectives, such as discouraging alcohol
    consumption or maximizing the government's monopoly profits, that
    either would not be considered by private sector businesses, or would
    not be achievable in a competitive market.\11 If the government's
    pricing policy results in final prices to consumers that are higher
    than those that private sector businesses would charge, then the
    effective tax rates on those beverage items exceed the statutory tax
    rates.  Conversely, if the government's pricing policy results in
    lower final prices, then the effective tax rates are lower than the
    statutory tax rates.

    The explanations of Virginia's and Montgomery County's pricing
    practices given to us by government officials did not provide a
    sufficient basis to allow us to say whether the controlled prices in
    those jurisdictions are likely to be higher or lower than those that
    would have existed without government controls.  Officials from the
    Virginia Department of Alcohol Beverage Control told us that the goal
    of their pricing policy is to generate a reasonable rate of return
    for the state.  The prices for liquor items sold in state stores are
    standard across the state.  The officials told us that these
    statewide prices are not greatly influenced by price competition from
    the District.  An official from Montgomery County's Department of
    Liquor Control told us that it was his understanding that the
    county's wholesale price mark-ups for alcoholic beverages are
    intended to reflect the prevailing mark-up practices in the industry.

    Information provided by Virginia and Montgomery County officials and
    by representatives of the District's Alcohol Retailers Association,
    whom we interviewed, suggests that the relationship between
    controlled and free market prices is likely to vary across beverage
    items.  Our limited comparison of liquor and wine wholesale prices in
    Montgomery County and the remainder of Maryland supports this idea.
    We do not have sufficient data to determine whether the controlled
    prices in Virginia and Montgomery County are, on average, higher or
    lower than those that would have existed without the controls.
    Consequently, we are not able to say whether Virginia's effective tax
    rates on liquor are higher or lower than the statutory rates, or
    whether the effective tax rates on all alcoholic beverages in
    Montgomery County are higher or lower than the statutory rates.\12

    --------------------
    \11 Virginia sets the retail prices for all liquor items sold in the
    state for off-premises consumption.  Bars and restaurants in the
    state must also purchase their liquor from the state at these same
    prices.  Montgomery County sets the wholesale prices for all
    alcoholic beverages sold in the county.

    \12 Appendix I provides information on Virginia's and Montgomery
    County's pricing practices and the results of our wholesale price
    comparison.

       THE DISTRICT'S COMBINED TAXES
       ON BEER AND WINE ARE HIGHER
       THAN THOSE IN MOST STATES
    ------------------------------------------------------------ Letter :5

    Although the District's excise taxes on alcoholic beverages are lower
    than those in most of the 50 states, the District's combined tax
    rates on beer and wine are higher than those in most states because
    its sales tax is among the highest.  The District's combined taxes on
    liquor are higher, for at least some items, than in most of the
    states for which we could readily make comparisons.

    Our analysis of data published by the Federation of Tax
    Administrators indicates that the District's excise tax rate on beer
    is lower than the rates in 40 states; its excise tax rate on liquor
    is tied with that of Maryland as the lowest among the 32 states that
    do not control the sale of liquor; and its excise tax rate on wine is
    lower than the rates in 38 out of the 46 states that do not control
    the sale of wine (see app.  II).  It was beyond the scope of this
    study to estimate effective excise tax rates for those states that
    control the sales of liquor and/or wine.

    In contrast to the excise taxes, the District's sales taxes on
    alcoholic beverages are higher than those in 45 states and equal to
    those in another state.  For the remaining four states, the
    comparison is mixed--depending on whether the sales are for
    on-premises or off-premises consumption.  The tax rates shown in
    appendix II do not include any taxes that may be levied by
    governments below the state level.

    We computed combined alcohol tax burdens for most of the states in a
    manner similar to our computations for the District, Maryland, and
    Virginia in tables 2 and 3.  We did not have sufficient time to
    incorporate all of the complexities of the alcohol taxes of some
    states into our computations, so we left those states out of our
    comparison.  Consequently, although we can say that the District's
    combined taxes on beer and wine are higher than those in most states
    (for the price ranges we examined), we cannot say exactly where the
    District ranks.  We could not make adequate comparisons with enough
    states to say whether or not the District's combined taxes on liquor
    are higher than those in most states.  However, for the states with
    which we could make comparisons, the District's combined taxes on
    liquor were higher than most of them, for at least part of the price
    range we examined.\13

    --------------------
    \13 We were able to make comparisons with the tax rates on sales for
    off-premises consumption in 30 states and the tax rates on sales for
    on-premises consumption in 28 states.

       THE DISTRICT WOULD HAVE SOME
       DIFFICUTLY CONFORMING ITS
       ALCOHOL TAXES TO THOSE IN
       MARYLAND OR VIRGINIA
    ------------------------------------------------------------ Letter :6

    There are significant differences among the alcohol tax structures of
    the various jurisdictions surrounding the District.  The District
    cannot conform to all of those tax structures at the same time.
    Moreover, the District would not be able to impose exactly the same
    effective tax rates that exist in either Virginia or Montgomery
    County, because those effective rates are difficult to estimate
    precisely; might change frequently; and are likely to vary by
    beverage type, brand, and container size.  In order to conform its
    combined statutory tax rates to those in Maryland, the District would
    have to lower its taxes on all alcoholic beverages.  The only way for
    the District to make its statutory taxes similar to those in
    Virginia, across the entire range of alcoholic beverages, would be to
    adopt a single sales tax rate for alcoholic beverages that is close
    to Virginia's and to adopt excise tax rates that are all very close
    to Virginia's.  This change would lower taxes on beer and high-priced
    wine in the District while raising the tax on liquor and low-priced
    wine.

    The District would face a difficult enforcement task if it adopted
    the ad valorem excise tax rate on liquor that Virginia currently
    levies.  Virginia's liquor excise tax is computed as 20 percent of
    the liquor price after the state has taken its combined wholesale and
    retail price mark-up.  To levy an equivalent tax, the District would
    have to impose the 20-percent rate on the final prices that retail
    stores charge their customers before applying the sales tax.  This
    tax would be more difficult to enforce than the District's current
    liquor excise tax, because (1) it would have to be collected from a
    much greater number of taxpayers; (2) taxpayers would have more of an
    incentive to understate their liquor sales, because the tax rate paid
    by each taxpayer would be higher than it currently is; and (3) to
    verify compliance, District auditors would have to examine a
    taxpayer's detailed sales receipts.  Virginia does not face these
    enforcement difficulties, because it collects the tax from its own
    stores.  No license state levies an ad valorem alcohol excise tax.

    It would be difficult for the District to devise an ad valorem liquor
    tax that closely approximates the tax that Virginia imposes on liquor
    sold for on-premises consumption.  Restaurants and bars in Virginia
    buy their liquor from state-run stores at retail prices that already
    reflect the 20 percent excise tax.  Those prices are not equivalent
    to either the wholesale prices that restaurants and bars in the
    District pay for their liquor or to the prices that District
    restaurants and bars charge their final customers.  Consequently, the
    District could not replicate Virginia's tax simply by imposing a tax
    rate on either the wholesale or final prices.  The District would
    have to define a new tax base that approximates the state-determined
    prices on which Virginia's excise tax is imposed.

    We are unable to say whether average alcohol prices and revenues from
    alcohol taxes would increase or decrease if the District conformed
    its statutory alcohol tax rates to those in Virginia.  In order to
    estimate the effects on average prices and revenues, we would need to
    know the distribution of alcohol sales in the District, by beverage
    type and by price range.  However, this information does not exist.
    The total value of alcohol sales in the District each year is
    unknown.\14 Without knowing how average prices would be affected, it
    is not possible to predict how total alcohol consumption in the
    District would be affected by this specific change in the District's
    tax structure.  The decrease in the combined tax on beer likely would
    cause beer consumption to increase, and the increase in the combined
    tax on liquor likely would cause liquor consumption to decline.  In
    order to determine whether such a trade-off would be desirable, we
    would have to be able to estimate the relative sizes of the changes
    in beer and liquor consumption.  The data needed to make such
    estimates do not exist.  National surveys indicate that beer is the
    alcoholic beverage of choice among youths who drink alcoholic
    beverages.  There is also some evidence that beer is
    disproportionately preferred by those who drink a lot during a
    typical session and that drinkers who prefer beer are more likely to
    drive while intoxicated than those who prefer wine or liquor.\15

    --------------------
    \14 Although it is possible to determine the total value of alcohol
    sales in the District taxed at the 8-percent rate, which applies only
    to sales of alcohol for off-premises consumption, according to
    District officials, it is not possible to determine the total value
    of alcohol sales taxed at the 10-percent rate.  That latter rate
    applies not only to sales of alcohol for on-premises consumption; it
    also applies to sales of food in restaurants, bars, and other
    establishments, as well as to car rental agreements and prepaid phone
    cards.

    \15 See Coate, Douglas and Michael Grossman, "Effects of Alcoholic
    Beverage Prices and Legal Drinking Ages on Youth Alcohol Use,"
    Cambridge, MA:  National Bureau of Economic Research, Working Paper
    No.  1852, 1986; and Berger, Dale and John Snortum, "Alcoholic
    Beverage Preferences of Drinking-Driving Violators," Journal of
    Studies on Alcohol, 46(3), 1985, pp.  232-239.

       SALES TAX INCREASES HAVE MORE
       THAN OFFSET THE EFFECT OF
       INFLATION ON EXCISE TAX RATES
       FOR MOST ALCOHOLIC BEVERAGES
    ------------------------------------------------------------ Letter :7

    All of the District's per-unit excise tax rates have declined in
    inflation-adjusted terms since they were last changed.  During this
    time, however, the District increased its ad valorem special sales
    tax rates on all alcoholic beverages.  For most of the beverage items
    we examined, the increases in the sales tax rates have, to date, more
    than compensated for the lack of indexation of the excise tax rates.

    The District's excise tax rates for beer, wine, and liquor were last
    changed in 1989, 1990, and 1978, respectively.  Each has declined in
    inflation-adjusted terms since those last changes.  Table 4 shows
    what the rates would have been at the time we did our review if they
    had been increased to keep pace with inflation.  The differences
    between the current tax rates and the inflation-adjusted rates for
    beer and wine are relatively small, because the last changes were
    relatively recent and price inflation has been very moderate.  In
    contrast, the inflation-adjusted excise tax rate on liquor would be
    more than twice as high as the current rate.

    Since the time that all of these excise tax rates were last
    increased, two changes have been made to the special sales tax rates
    for alcoholic beverages.  In 1992 the sales tax rate for alcoholic
    beverages sold for off-premises consumption was increased from 6
    percent to 8 percent.  In 1994 the rate for on-premises consumption
    was increased from 9 to 10 percent.  There was one additional change
    in the on-premises sales tax rate--from 8 to 9 percent in 1989--since
    1978, when the liquor excise tax rate was last changed.\16

                                    Table 4

                     Current and Inflation-Adjusted Excise
                                   Tax Rates

                                      Fiscal
                                        year
                                     current                      Tax rate
                                    rate was   Current tax        adjusted
    Beverage                      introduced          rate   for inflation
    ----------------------------  ----------  ------------  --------------
    Beer                                1989      $.09 per        $.11 per
                                                    gallon          gallon
    Wine                                1990      $.30 per        $.34 per
                                                    gallon          gallon
    Liquor                              1978     $1.50 per       $3.14 per
                                                    gallon          gallon
    ----------------------------------------------------------------------
    Source:  GAO computations based on tax rates provided by the District
    of Columbia's Office of Tax and Revenue and the U.S.  Department of
    Labor's Consumer Price Index's alcoholic beverage component for the
    Washington metropolitan area.

    The increases in the sales tax rates have more than compensated for
    the lack of indexation of the excise tax rates for most of the
    beverage items we examined.  For each alcoholic beverage item
    included in tables 2 and 3, we computed the tax burdens at two points
    in time--now and the date at which the excise tax on that item was
    last changed.  We also computed each tax burden as a percentage of
    the final price of the item.  (See table 5.) Only for the
    lowest-priced liquor item sold for off-premises consumption has the
    tax burden declined noticeably since the earlier date.  Currently,
    the District's combined taxes on liquor account for 13.0 percent of
    the final price that consumers pay for an $8.00, 1-liter bottle of
    liquor.  In 1978, the District's combined taxes on that same bottle
    accounted for 15.7 percent of its final price.\17

                                         Table 5

                         Current Combined Tax Burdens Compared to
                         Those When Current Excise Tax Rates Were
                                     First Introduced

                                                                        Combined tax
                                                                                  on
                                                                        alcohol as a
                                                                       percentage of
                                                             Current           final
                                                            combined   price, at the
                                                                 tax            time
                                                          on alcohol    that current
                                                Retail          as a          excise
                                                 price    percentage  tax rates were
                                                    in            of           first
    Beverage item                                 1998   final price      introduced
    ------------------------------------------  ------  ------------  --------------
    Off-site consumption
    Six-pack of beer                             $4.00          9.3%            7.2%
    Six-pack of beer                              7.00           8.7             6.5
    750-ml bottle of wine                         4.00           9.5             7.4
    750-ml bottle of wine                        12.00           8.5             6.2
    1-liter bottle of liquor                      8.00          13.0            15.7
    1-liter bottle of liquor                     30.00           9.3             8.5
    On-site consumption
    12-ounce bottle of beer                       2.00          10.4             7.9
    12-ounce bottle of beer                       4.00          10.2             7.7
    6-ounce glass of wine                         2.00          10.7             8.2
    6-ounce glass of wine                         4.00          10.4             7.8
    2-ounce shot                                  2.00          11.2             9.9
    2-ounce shot                                  7.50          10.3             8.1
    --------------------------------------------------------------------------------
    Sources:  GAO computations based on tax rates provided by the
    District of Columbia's Office of Tax and Revenue and the U.S.
    Department of Labor's Consumer Price Index's alcoholic beverage
    component for the Washington metropolitan area.

    The District's alcohol excise taxes will continue to decline
    gradually in inflation-adjusted terms.  In order to keep the real
    value of its combined tax rates on alcohol close to what they are
    currently, the District would have to increase its excise tax rates
    periodically, in step with inflation.

    --------------------
    \16 Dates of sales tax rate changes were provided by the District of
    Columbia's Office of Tax and Revenue.

    \17 The final price equals the retail price plus the sales tax paid.
    Thus, the final price for the $8.00 bottle is currently $8.64.  To
    compute the final prices for the earlier dates, we deflated the
    retail price for each item (after subtracting out the excise tax) so
    that it would represent the pretax price that existed at the time
    that the applicable excise tax rate was last changed.  We then added
    the appropriate excise and sales taxes to obtain the final price.

       AN INCREASE IN THE DISTRICT'S
       ALCOHOL TAXES WOULD LIKELY
       REDUCE ALCOHOL CONSUMPTION AND
       SOME RELATED PROBLEMS
    ------------------------------------------------------------ Letter :8

    Taxes on alcohol are a means of reducing alcohol misuse while at the
    same time raising revenue.  Economic theory and empirical evidence
    indicate that higher alcohol taxes increase the prices for alcoholic
    beverages, and higher prices affect alcohol consumption.  However,
    there is some uncertainty regarding the extent to which the taxes are
    passed through to consumers as higher prices, and empirical research
    estimates vary on the degree to which changes in prices affect
    alcohol consumption.

    Researchers have found that changes in alcohol prices affect most
    categories of drinkers, but to different degrees.  Youths and young
    adults appear to be more sensitive to price than older adults.  Some
    recent studies have found that higher alcohol taxes and prices are
    associated with declines in drunken driving, motor vehicle
    fatalities, rapes, and robberies.  The special geographic
    circumstances of the District--where all of its suburbs are in other
    jurisdictions--may serve to weaken the effect that an increase in the
    District's taxes would have on local alcohol consumption.

          ALCOHOL TAXES INCREASE
          ALCOHOL PRICES, BUT THE
          RELATIONSHIP VARIES WITH
          CIRCUMSTANCES
    ---------------------------------------------------------- Letter :8.1

    Economists have suggested that the extent to which any excise tax
    increase is passed along to consumers varies, depending on the
    characteristics of the markets where consumers purchase their
    beverages.  Such characteristics would include how much competition
    among sellers exists in the markets.  There is a clear presumption in
    the economic literature that in the long run, under perfectly
    competitive market conditions, tax increases on consumer goods are
    completely passed along by producers, wholesalers, and retailers to
    the final consumers in the form of higher prices for the taxed goods.
    The alcohol industry, however, does not operate under purely
    competitive conditions.  Researchers have concluded that the alcohol
    industry is oligopolistic, meaning that it is dominated by a few
    large suppliers.\18 There is no generally accepted theory of how
    prices are determined in an oligopolistic industry; therefore, the
    exact extent to which alcohol excise taxes will affect the prices of
    alcoholic beverages is uncertain.  Nor is there clear empirical
    evidence to indicate what portion of a tax increase will be passed
    along to alcoholic beverage consumers in the form of increased
    prices.  Some researchers have estimated that past alcohol excise tax
    increases have caused prices to increase by more than the full amount
    of the tax increase.  Other economists have suggested that the extent
    to which excise tax increases are passed along to consumers varies
    depending on the characteristics of the markets where consumers
    purchase their beverages.  Such characteristics include how
    responsive market demand is to price changes and how much competition
    among sellers exists in the markets.  In the absence of more
    conclusive evidence, most researchers trying to model the effects of
    taxes and prices on alcohol consumption assume that an excise tax
    increase will cause sellers to raise their prices to consumers by at
    least the full amount of the tax.

    --------------------
    \18 For example, in 1990 two producers supplied over 50 percent of
    the domestic beer market.

          EMPIRICAL ESTIMATES INDICATE
          THAT PRICES AFFECT ALCOHOL
          CONSUMPTION AND SOME OF ITS
          HARMFUL CONSEQUENCES
    ---------------------------------------------------------- Letter :8.2

    Numerous empirical studies confirm the conclusion of economic theory
    that the higher prices that result from tax increases will have a
    negative effect on alcohol consumption.  However, precise estimates
    of the degree to which consumption is affected are difficult to
    obtain given the limitations of available data on alcohol prices and
    consumption.\19

    Researchers have found that light, moderate, and heavy drinkers in
    the general population cut back on consumption when alcohol prices
    are increased.  However, study results vary concerning the relative
    price sensitivity of light, moderate, and heavy drinkers.  The
    preponderance of the evidence on youth drinking indicates that youths
    and young adults are more sensitive to price than older adults,
    particularly those adults who have developed a long-term lifestyle
    that includes heavy drinking.  Researchers also found that beer is
    the beverage of choice among youth who drink alcoholic beverages and
    that youth seem to be more responsive to changes in alcohol prices
    than the population in general.

    Researchers also have found negative relationships between alcohol
    prices or tax rates and the adverse consequences associated with
    alcohol misuse, especially between alcohol use and auto crashes and
    fatalities.  For example, a recent study demonstrated that higher
    state beer excise tax rates had a significant impact on lowering
    total driver fatalities, night driver fatalities, and alcohol-related
    fatalities for drivers of all ages and for drivers 18 to 20 years
    old.  Another study found that alcohol prices had a negative effect
    on binge drinking--a 9-percent reduction in the number of binge
    episodes per month resulted from a 10-percent increase in price.
    Other research indicates that higher alcohol taxes (or prices) have a
    negative and statistically significant effect on suicide rates;
    possibly on the liver cirrhosis death rate; on mortality rates from
    other cancers to which alcohol contributes; and on violent crimes,
    such as rape and robbery.  Some authors observe that the bulk of
    evidence supports the conclusion that increasing alcohol taxes would
    extend life expectancy.

    --------------------
    \19 See appendix III for a review of the specific empirical findings
    of researchers who studied the effects of price increases on alcohol
    consumption and a discussion of some of the data limitations that the
    researchers have faced.

          COMPETITION FROM MARYLAND
          AND VIRGINIA MAY WEAKEN THE
          EFFECTS OF A DISTRICT TAX
          INCREASE
    ---------------------------------------------------------- Letter :8.3

    If the District raises its alcohol taxes while Maryland and Virginia
    do not, then some consumers who currently purchase their alcohol in
    the District may shift the location of some of their purchases to
    neighboring jurisdictions.  The actual public health benefits of an
    increase in alcohol taxes would be reduced to the extent that the tax
    increase merely shifted the location of purchases rather than
    reducing consumption.

    Prior research indicates that the rates of local sales and/or excise
    taxes across jurisdictions within a region can influence where the
    consumers of that region shop.  The importance of these so-called
    "border effects" of tax rate differences depends on the specific
    border situation in question, but several characteristics of the
    District's metropolitan area imply that policymakers should not
    ignore these effects when considering changes in the District's
    alcohol taxes.  First, most of the District's residents live within a
    relatively short distance of alcoholic beverage retail outlets in
    Maryland or Virginia.  Second, every work day the District has a
    large influx of commuters, who might shop in the District with
    relative ease if they had a sufficient incentive.  Finally, residents
    in the immediate metropolitan area have a wide range of choices of
    bars and restaurants in all three jurisdictions.  If the District
    were the only jurisdiction in the region that raised its taxes on
    alcohol, then the after-tax prices of alcoholic beverages sold in the
    District would increase relative to prices in the surrounding
    jurisdictions, and retailers operating in the District could lose
    some business to competitors in the surrounding jurisdictions.\20

    In comparison to, say, a 10-cents-per-gallon increase in the federal
    beer tax, a 10-cents-per-gallon increase in the District's beer tax
    would have less of an effect on alcohol consumption (and associated
    problems) of individuals who currently buy alcohol in the District.
    Those individuals could avoid a District tax increase that was passed
    on to consumers by making their purchases in Maryland or Virginia.
    If the cost of shifting the location of their purchases is less than
    the cost imposed by the District tax increase, then their cost of
    consumption would not have risen by the full 10 cents per gallon.\21
    In contrast, these individuals could not avoid a full increase in the
    federal excise tax that was passed on to consumers by shifting their
    purchases.  Because the District tax would increase the cost of
    consumption for some consumers by less than a similar federal tax
    increase would, it would produce smaller aggregate behavioral
    changes.\22 In addition to reducing the beneficial behavioral effects
    of an alcohol tax increase, the shifting of sales would reduce the
    potential revenue gains for the District.  It would be difficult to
    accurately estimate the size of the shift in sales that would occur
    from any given increase in the District's alcohol taxes because of
    the many factors involved.

    --------------------
    \20 Local laws that prohibit or limit the transportation of alcoholic
    beverages from one jurisdiction to another may reduce cross-border
    shopping, but to an unknown degree.  For example, Virginia limits the
    importation of alcoholic beverages, not for resale, to no more than 1
    gallon or 4 liters in any one trip.  Maryland limits personal
    importation to 1 quart per person per trip and no more than 2 quarts
    in any one calendar month.

    \21 The cost of shifting locations of purchase will vary across
    individuals.  Individuals who commute between the District and the
    surrounding jurisdictions every day are likely to have lower costs of
    shifting their purchase locations than those who would have to make a
    special trip into or out of the District just to purchase alcohol.
    Individuals living close to the border of Maryland and the District
    may experience no difference in transportation costs, whether they
    shop in one jurisdiction or the other.  The number of individuals who
    would find it less costly to shift their purchases than to pay the
    increased tax in the District would depend on the size of the tax
    increase.

    \22 A District tax increase could conceivably increase drunk driving
    if it leads some District residents to drive farther away from home
    to consume alcohol and then drive back.  However, the increase could
    have an opposite effect if it leads Maryland and Virginia residents
    to drink locally, rather than drive into the District.

       MANY STATES EARMARK PORTIONS OF
       THEIR ALCOHOL TAX REVENUES FOR
       SPECIFIC PURPOSES
    ------------------------------------------------------------ Letter :9

    As of 1993, 24 states earmarked at least a portion of their alcohol
    excise tax revenues for specific purposes.  The percentage of the
    alcohol tax revenue that was earmarked in each of these states ranged
    from 4.5 percent in Colorado to 100 percent in West Virginia.  The
    purposes for which the alcohol revenue were earmarked also varied
    substantially across these states--from public schools, to local
    governments, to convention promotion.  Appendix IV shows how much
    revenue was earmarked for each purpose in each state in fiscal year
    1993.  In 15 of the states some of the revenue was specifically
    earmarked for alcohol treatment, substance abuse, and/or mental
    health programs.  Since 1994, the District has earmarked 10 percent
    of its sales tax on alcoholic beverages sold for on-premises
    consumption to the Washington Convention Center Authority Fund.

       STUDIES HAVE SHOWN THAT SOME
       ALCOHOL PREVENTION APPROACHES
       ARE EFFECTIVE, BUT MANY NEED
       MORE RIGOROUS EVALUATION
    ----------------------------------------------------------- Letter :10

    Communities have opted to use alcohol prevention approaches that fall
    into three general categories.  The first approach emphasizes
    education and skill-building programs directed toward individuals in
    schools, families, colleges, and specific population groups (e.g.,
    women and minorities).  The second approach is more population-based,
    using legal and regulatory strategies to influence the physical and
    social environments in which drinking occurs or is promoted.  For
    example, state and local governments seek to control the availability
    of alcohol by regulating the location, hours of operation, and number
    of establishments that sell alcoholic beverages.  A third approach
    combines these two by creating multiple communitywide strategies,
    such as using education and skill-building programs to support new
    laws and regulations.  When programs directed toward individuals have
    shown success, their effects have been small.  Many of these programs
    need to be evaluated more rigorously and over time to determine their
    effectiveness.  Research has shown that several laws and regulations
    that control the physical availability of alcohol or the social
    environment in which drinking occurs have resulted in lowered
    consumption and fewer alcohol-related problems.  However, research on
    other preventive approaches influencing children's social
    environment, such as controlling advertising, has been less
    definitive.  Studies have shown that combining the use of individual
    and population-based legal and regulatory strategies can be
    successful; additional studies of this approach are still under way.

          APPROACHES THAT FOCUS ON
          EDUCATION AND SKILL BUILDING
          HAVE SHOWN MODEST SUCCESS
    --------------------------------------------------------- Letter :10.1

    Alcohol prevention approaches that are directed toward the individual
    generally use education, information, and skill-building activities
    to change attitudes and beliefs that influence drinking behavior and
    enhance people's ability to resist underage and abusive drinking.
    These approaches, although directed toward the individual, are most
    often presented in group settings, such as schools, families, and
    colleges and universities; or may focus on specific population
    groups, such as minorities and women.  Table 6 describes different
    types of education and skill-building programs that are commonly used
    to combat alcohol abuse and prevent drinking among youth.

                                    Table 6

                     Education and Skill-Building Programs

    Type of program         Prevention strategy used
    ----------------------  ----------------------------------------------
    School-based            Life skills training focuses on enhancing an
                            individual's social interaction, interpersonal
                            conflict resolution, and assertiveness.

                            Resistance education strategies teach young
                            people to identify and resist specific
                            situations that could create pressure for them
                            to drink alcohol.

                            Normative education strategies try to correct
                            erroneous beliefs that young people have about
                            the prevalence and acceptability of alcohol
                            use among their peers and to promote
                            conservative attitudes about its use.

    Parent and family       Programs range from providing education about
                            alcohol use and abuse to strengthening the
                            family's ability to socialize the children in
                            a positive manner.

    College or university   Strategies focus on the early detection of
                            alcohol abuse, particularly binge or heavy
                            drinking, and intervention.

    Specific population     Strategies address the specific needs of
    groups                  groups, such as minorities and women, and the
                            communities in which they live.
    ----------------------------------------------------------------------
    Source:  NIAAA.

    Since the 1960s, school-based programs have played a key role in the
    prevention efforts of many states and communities, primarily because
    they give easy access to a young audience.  Research shows that
    although these programs are one of the most popular alcohol
    prevention approaches and continue to target thousands of today's
    young drinkers and potential drinkers, experts still debate their
    effectiveness.  The main goals of school-based programs are to
    decrease the overall prevalence and level of drinking among youth;
    reduce the progression of alcohol consumption to problem levels; and,
    ideally, prevent young persons from starting to drink.  One of their
    major strategies is to influence knowledge, beliefs, or attitudes
    about alcohol and its effects.  Participants in one life skills
    program reported lower alcohol use than nonparticipants after 5
    years.\23 The prevention literature suggests, however, that the
    success of most school-based programs in preventing the onset of
    drinking and reducing the use of alcohol has been small.

    Communities also use education and skill-building programs directed
    to individuals in family units, colleges, and specific groups, such
    as women and minorities.  Research results have suggested that parent
    participation in alcohol prevention programs could be effective in
    reducing alcohol use, but such programs generally have a difficult
    time getting large numbers of parents to participate on a regular
    basis.  Research has also shown that a prevention program for
    freshman students at one university succeeded in reducing alcohol
    consumption and problems associated with excessive drinking.\24
    Researchers are exploring whether minorities, women, and other
    special populations could benefit from prevention programs tailored
    to their needs.

    --------------------
    \23 Gilbert J.  Botvin et al., "Long-term Follow-up Results of a
    Randomized Drug Abuse Prevention Trial in a White Middle-Class
    Population," Journal of the American Medical Association, 273:14
    (1995), pp.  1106-12.

    \24 The High Risk Drinkers Project targeted freshman students at the
    University of Washington and resulted in participants having levels
    of both drinking and alcohol-related problems significantly lower
    than those of a randomly assigned control group after 2 years.
    NIAAA, "Prevention of Alcohol Problems," Chapter 9 of Alcohol and
    Health:  Ninth Special Report to the U.S.  Congress, U.S.  Department
    of Health and Human Services, pp.  305-306, 1997.

          APPROACHES THAT INFLUENCE
          PHYSICAL AND SOCIAL
          ENVIRONMENTS IN WHICH
          DRINKING OCCURS
    --------------------------------------------------------- Letter :10.2

    The research literature suggests that certain legal and regulatory
    strategies that influence the physical and social environments in
    which alcohol is consumed are effective in reducing consumption and
    alcohol-related problems.  Prevention approaches that use these
    strategies generally fall into two categories:  (1) those intended to
    influence individual drinking practices, such as enforcement of
    impaired driving laws; and (2) those aimed at regulating the
    availability of alcoholic beverages, such as restricting the number
    and location of establishments selling alcohol.  Prevention research
    has produced evidence demonstrating the effectiveness of several
    legal and regulatory strategies, such as laws prohibiting the sale of
    alcohol to minors, server training programs, and various measures to
    deter drinking and driving.  Research has not been conclusive,
    however, regarding the effectiveness of laws and regulations that,
    for example, control the hours and days of alcohol sales, restrict or
    ban alcohol advertisements, or require warning labels on alcoholic
    beverages.  Table 7 shows various types of legal and regulatory
    strategies and their success in reducing alcohol consumption and
    problems associated with excessive drinking.

                                         Table 7

                         Selected Legal and Regulatory Prevention
                                        Strategies

                                                          Research results on
    Type of approach           Prevention strategy used   effectiveness of strategy
    -------------------------  -------------------------  --------------------------
    Availability of alcohol    Limiting the number of     Research suggests that
                               alcohol outlets in a       restricting the density of
                               given geographical area    alcohol outlets may be
                               or community.              effective in reducing
                                                          alcohol consumption and
                                                          motor vehicle crashes.

                               Limiting the hours and     Extended hours of sale do
                               days alcohol can be sold.  not necessarily increase
                                                          alcohol consumption or
                                                          related problems.

                                                          Restrictions on days when
                                                          sales are permitted appear
                               Establishing 21 as the     to reduce traffic
                               minimum legal age for the  crashes.
                               purchase and consumption
                               of alcohol.                Raising the legal drinking
                                                          age to 21 effectively
                                                          reduced youth drinking and
                                                          related problems.

    Server intervention,       Training programs to       Server training can modify
    control laws, and legal    enhance the skills of      servers' and managers'
    liability                  servers and managers to    knowledge and beliefs
                               identify intoxicated and   about alcohol service and
                               underage individuals and   change serving practices.
                               discourage them from
                               drinking.                  Liability laws can affect
                                                          the behavior of persons
                               State and local laws and   who serve alcohol,
                               regulations define who     resulting in patrons
                               may serve or be served     consuming less alcohol.
                               alcohol, the type of
                               alcohol sold, and the
                               time during which alcohol
                               can be sold.

    Alcohol advertisements     Restrictions or bans on    The effects of advertising
                               advertising,               restrictions or bans are
                               counteradvertising         unclear.
                               efforts or warnings, and   Limited evidence suggests
                               health promotion           that counteradvertising
                               campaigns.                 and health promotion may
                                                          be effective.

                                                          Warning labels do not
                               Containers for alcoholic   appear to influence
                               beverages must have a      drinking behavior.
                               clear, nonconfusing label
                               warning of alcohol-
                               related hazards.\a

    Drinking and driving       Drinking and driving laws  Evidence suggests that
                               that set blood alcohol     drinking and driving laws
                               concentration levels for   have significantly
                               young and adult drivers    decreased alcohol-related
                               and use deterrence         traffic crashes and
                               measures, such as          problems.
                               interlock devices.\b
    --------------------------------------------------------------------------------
    \a In 1989, Public Law 100-690 required that containers for alcoholic
    beverages be labeled to warn women about the risk of birth defects
    from drinking during pregnancy and to warn the public about the
    dangers associated with drinking and driving a car or operating
    machinery.

    \b Judges can order that an interlock device be installed in the cars
    of people convicted of alcohol-impaired driving.  This device
    requires that the driver pass a dexterity or an alcohol-free test
    before the vehicle will start.

    Source:  NIAAA.

          VISIBLE ENFORCEMENT OF LEGAL
          AND REGULATORY STRATEGIES
          CAN ENHANCE THEIR
          EFFECTIVENESS
    --------------------------------------------------------- Letter :10.3

    The literature suggests that visible enforcement programs and
    education can enhance the beneficial effects of certain legal and
    regulatory strategies.  The deterrent effect of a law depends, at
    least in part, on the public's belief that violations are likely to
    be detected and violators punished.  The District of Columbia and the
    states of Maryland and Virginia use a number of enforcement
    techniques to ensure compliance with state and local laws covering,
    among other things, who may serve or be served alcohol, the type of
    alcohol that can be sold, and the time during which alcohol can be
    sold.  Appendix V describes selected provisions of alcohol control
    laws, along with related penalties, for the District, Maryland, and
    Virginia.\25

    Alcohol beverage control (ABC) boards establish conditions for
    issuing licenses to sell alcohol and rely on a cadre of enforcement
    officials\26 to monitor compliance with these regulations and impose
    penalties for violations.  Owners of licensed drinking establishments
    and alcohol servers can be punished by fines and short jail terms if
    they violate alcohol-related laws and regulations.  The District and
    neighboring jurisdictions in Maryland and Virginia devote different
    levels of resources to enforcement.  For example, the ratio of
    enforcement officials to licensees in the District is about 1 to 400;
    the ratio in the City of Alexandria is about 1 to 150.\27 In
    Virginia, unlike Maryland and the District, ABC enforcement officials
    have enhanced authority, which, among other things, allows them not
    only to fine the establishment that sells alcohol to underage
    purchasers, but also to fine the employee and the youth attempting to
    purchase alcohol.  ABC officials in the District and Maryland would
    like similar enforcement authority granted to their staff, because
    they believe that this authority is a highly effective deterrent to
    underage drinking.  Following is a description of several legal and
    regulatory strategies whose effectiveness has been demonstrated by
    research.

      -- Studies of server training programs reveal that they can modify
         servers' and managers' knowledge and beliefs about alcohol
         service and bring about changes in serving practices that help
         reduce the rate and amount of alcohol consumed by patrons.  Such
         training increased staff intervention with intoxicated patrons
         and increased servers' willingness to suggest alternative
         beverages and forms of transportation.  Research also shows that
         server intervention can be greatly enhanced through increased
         enforcement of alcohol control laws and server liability laws.

      -- Several researchers have explored the effectiveness of
         increasing the visibility of enforcement and the rigorousness of
         prosecution of alcohol control laws.  They found declines in
         both the number of arrests for driving under the influence of
         alcohol obtained at bars and restaurants and incidents of
         alcohol service to researchers posing as intoxicated patrons.
         Research also shows that liability laws have affected the
         behavior of persons who serve alcohol, which in turn affects the
         drinking practices of patrons.  Server liability laws place the
         server at risk of committing a violation for serving alcohol to
         underage drinkers or highly intoxicated patrons.  Further, under
         civil liability, or dram shop laws, an alcohol server has
         potential legal responsibility for damage that intoxicated
         patrons and underage drinkers inflict on themselves or others.
         The financial loss that bar and restaurant servers and managers
         may incur is expected to deter serving practices that could
         increase a patron's risk of a motor vehicle accident and other
         liabilities.

      -- The minimum legal drinking age (MLDA) policy has been heavily
         studied, with numerous research findings demonstrating the
         effectiveness of a higher MLDA in preventing injuries and deaths
         among youth.  For example, the MLDA of 21 is estimated to save
         more than 1,000 young lives each year.  A recent review of 50
         studies provided evidence that raising the legal drinking age to
         21 reduced youth drinking and related problems, such as traffic
         crashes.  In response to many concerns about people under the
         age of 21 easily obtaining alcohol, research has also suggested
         that the MLDA could become even more effective with increased
         enforcement, including deterrents for adults who might sell or
         provide alcohol to minors.

      -- Lower legal blood alcohol concentration (BAC) limits for youth
         and adults have been found to decrease alcohol-related traffic
         fatalities.  Many states have lowered legally allowable BAC
         limits for young drivers in an effort to reduce their
         involvement in alcohol-related crashes; for these states, BACs
         range from .00 to .05.  An analysis of the first four states to
         lower BAC levels found that these states experienced a decline
         in teenage nighttime fatal crashes 30 percent greater than
         declines in nearby comparison states that did not lower the BAC
         limit.\28 A number of states have also lowered the legal BAC for
         adults from .10 to .08 percent.  Studies of a subset of these
         states project that if all states adopted a .08 percent BAC law
         for adults, at least 500 to 600 fewer deaths would occur
         annually.\29

    --------------------
    \25 Some counties have enacted restrictions on various forms of
    advertising of alcoholic beverages, such as bans on advertising
    prices or restrictions on how and where alcoholic beverages may be
    publicly displayed.  In 44 Liquormart v.  Rhode Island, 517 U.S.  484
    (1996), however, the Supreme Court found that a Rhode Island law that
    banned advertisement of retail liquor prices (except at the place of
    sale) violated the First Amendment guarantee of freedom of speech.
    Therefore, some current restrictions on advertising of alcoholic
    beverages may present constitutional problems.

    \26 In the District, these officials are called investigators; in
    Virginia, enforcement agents; and in Montgomery and Prince George's
    Counties, inspectors.

    \27 The District's Fiscal Year 1998 Appropriations Act directs the
    District to hire 12 new investigators, with half focusing on
    prohibiting sales to minors.  The District of Columbia Financial
    Responsibility and Management Assistance Authority Board has not yet
    authorized the D.C.  ABC Board to hire the investigators and
    continues to study how it can find the money for the new hires.  In
    addition, the D.C.  budget has not been augmented to cover the 12
    additional hires.

    \28 Ralph Hingson, "Prevention of Alcohol-Impaired Driving," Alcohol
    Health and Research World, Vol.  17, No.  1(1993), pp.  28-34.

    \29 The District of Columbia lowered its BAC to .00 percent for
    minors in 1994 and currently has a BAC of .10 percent for adults.  A
    provision that would reduce states' highway construction dollars if
    the states fail to lower the legal blood alcohol limit for adults to
    .08 percent by 2001 is currently under consideration by Congress as
    part of the Intermodal Surface Transportation Efficiency Act of 1998.

          EFFORTS COMBINING MULTIPLE
          APPROACHES ARE GAINING
          POPULARITY, BUT EVALUATIONS
          ARE STILL UNDER WAY
    --------------------------------------------------------- Letter :10.4

    Lately, communitywide prevention efforts that combine multiple
    strategies have become a more popular response to problems related to
    alcohol misuse.  These communitywide programs incorporate strategies
    to both regulate the physical and social conditions in which drinking
    occurs and educate individuals about alcohol use and enhance their
    ability to reduce or resist drinking.  Early research indicated that
    using multiple approaches produced only temporary changes in drinking
    behavior and the prevalence of alcohol-related problems.  Programs
    were redesigned in response to these findings, and preliminary data
    suggest that these newer multifaceted strategies may be more
    successful in reducing alcohol consumption than either individual or
    environmental approaches alone.  For example, in several states
    implementation of a strong educational program, along with lowering
    the legal BAC limit for teen drivers, was reported to significantly
    reduce nighttime fatal automobile crashes.  A 5 year community
    prevention trial that combined several strategies, including
    mobilizing the community, increasing enforcement of drinking and
    driving laws, and enforcing underage sales laws, resulted in a
    reduction in alcohol-involved traffic crashes of about 10 percent a
    year and significant reductions in alcohol sales to minors.\30
    Evaluations of several major studies of communitywide approaches are
    still under way and no final outcome data are available.  One of the
    studies, Project Northland-Phase II, focuses on reducing drinking and
    alcohol-related problems among 15- to 17-year-olds and includes a
    combination of school and media curricula; youth social action
    programs; parent involvement and education; and community task forces
    for numerous policy and social interventions (e.g., enforcing
    existing laws prohibiting alcohol sales to minors and restricting
    alcohol sales at sporting, music, and other public events).\31

    --------------------
    \30 Addiction:  A Community Prevention Trial to Reduce
    Alcohol-Involved Trauma, Vol.  92, Supplement 2, June 1997.

    \31 Kelli A.  Komro et al., "Project Northland - Phase II:  Research
    and Evaluation Design of a Community-Wide Program to Reduce
    Adolescent Alcohol Use." Proceedings published from a Kettil Bruun
    Society Thematic Meeting, Fourth Symposium on Community Action
    Research and the Prevention of Alcohol and Other Drug Problems,
    February 8-13, 1998, New Zealand, forthcoming.

          LIMITED EVIDENCE TO
          DETERMINE WHAT WORKS
    --------------------------------------------------------- Letter :10.5

    Based on the current research literature, only a few alcohol
    prevention approaches have been adequately evaluated and proven
    effective.  With the exception of several well-designed studies, such
    as Project Northland and research on the MLDA, most published
    evaluations of the effectiveness of alcohol prevention programs and
    strategies were shown to be methodologically weak.  Detailed reviews
    of the alcohol prevention literature by NIAAA, the Institute of
    Medicine, and other experts found limitations in the study designs
    that affect the evaluation of outcomes and may compromise
    conclusions.  Common problems include questions about the validity of
    self-reported data, the selection of inappropriate research designs
    and statistical analyses, lack of comparable experimental and control
    groups, and the potential impact of high attrition rates.
    Evaluations of early school-based programs, for example, relied
    heavily on self-reported data to measure alcohol use, which raises
    concerns about possible underreporting or overreporting by program
    participants.  Although recent studies have attempted to address many
    methodological challenges that commonly face researchers of
    prevention programs, concerns continue to surface.  For example,
    although research has shown that some legal and regulatory approaches
    are effective, the inability to control factors beyond the study
    interventions makes it difficult to determine the exact nature of the
    relationship between the prevention strategy and changes in drinking
    behavior.

          ENFORCEMENT STRATEGIES IN
          DISTRICT OF COLUMBIA
          METROPOLITAN AREA
    --------------------------------------------------------- Letter :10.6

    The District of Columbia, Maryland, and Virginia support a number of
    enforcement strategies to enforce laws intended to prevent underage
    drinking and the misuse of alcohol by adults.  Some of these
    strategies are directed at sales outlets, while others are aimed at
    preventing underage access to alcohol and promoting responsible
    drinking.  ABC Boards, ABC enforcement officials, and local police
    departments are responsible for implementing these strategies.
    Although the following strategies have not been formally evaluated,
    officials we interviewed cite them as successful.

      -- A reverse sting operation, commonly referred to as cops in
         shops, was an effort in which police officers, posing as store
         clerks, apprehended minors using false identification to
         purchase alcoholic beverages while ABC officials and/or police
         officers waited outside in cars.  Some of the officials we
         interviewed ranked this program as the most successful
         enforcement program in their jurisdictions, claiming numerous
         citations issued to youth and subsequent decreases in underage
         attempts to purchase alcohol.  Officials said that establishment
         owners welcomed this program, because only underage violators
         were fined, not the establishment.  Additionally, the
         establishments did not have to pay the police officer, who
         worked as a clerk for several hours in the liquor outlet.  This
         program, funded through a federal grant with the assistance of
         the Washington Regional Alcohol Program of Northern Virginia,
         was implemented for 1 year in the District and several Maryland
         and Virginia counties.

      -- Maryland requires an alcohol awareness training course for every
         licensed establishment.  Alcohol beverage control officials in
         the District and Virginia support efforts to offer such
         training, and the District requires training for establishment
         owners who have violated liquor laws.  Officials we interviewed
         believe that statewide laws should require that a trained person
         be on the premises of an establishment at all times, or else the
         training has little effect on consumption.  Although Maryland
         law does not require this, Montgomery County supplemented
         Maryland law to require a trained person on the premises at all
         times.

      -- Beer keg registration, a strategy in use in the District,
         Maryland, and Virginia, requires that every keg sold must be
         registered, with information on a label as to who bought it,
         what kind of identification was shown, and where the keg came
         from.  This is to discourage adults from purchasing kegs for
         youth; if the label is removed, legal responsibility rests with
         the person hosting the party.  Officials told us this has
         resulted in a decline in adult beer keg purchases for underage
         drinkers and has cut down on the number of youth drinking
         parties.

      -- Montgomery County, Maryland, and Virginia use sting operations
         involving underage decoys who accompany ABC enforcement
         officials to establishments to attempt to purchase alcohol.  If
         an establishment sells alcohol to a decoy, it can be penalized.
         Montgomery County also uses these underage volunteers in a
         program to monitor hotel and motel room service operations.  In
         this sting operation, the ABC official rents a room and the
         underage volunteer calls for room service, ordering an alcoholic
         beverage.  The official waits unseen to observe if the youth is
         illegally allowed to purchase alcohol.  According to Montgomery
         County officials, this program has been highly effective; hotels
         had 100 percent compliance rates with underage drinking laws
         following 2 consecutive years in which they had a 66 percent
         violation rate.  Prince George's County officials disagree with
         the concept of a sting operation; they believe it
         inappropriately entraps establishments.

          THE DISTRICT OF COLUMBIA
          FUNDS VARIOUS ALCOHOL ABUSE
          PREVENTION AND TREATMENT
          PROGRAMS
    --------------------------------------------------------- Letter :10.7

    In addition to its enforcement efforts, the District funds a variety
    of health and education programs to prevent and treat alcoholism,
    most of which are components of overall substance abuse programs.  In
    fiscal year 1997, District agencies spent about $66 million providing
    substance abuse services to its residents.\32 Most of these dollars
    were used for treatment services.  The District Department of
    Health's Addiction Prevention and Recovery Administration (APRA) is
    one of the major providers of substance abuse treatment and
    prevention services, with total spending of about $24 million in
    fiscal year 1997.  The District of Columbia Public Schools are a
    source of funding for prevention activities for school-aged youth.

    APRA funds alcohol prevention programs and offers counseling and
    treatment services to residents, either directly or through
    contractors.  Alcohol prevention activities directed to youth who
    have not begun to use alcohol range from disseminating information
    and educating targeted populations, such as school-aged and college
    youth, to helping community groups develop programs.  During fiscal
    year 1997, APRA spent about $1.2 million of its federal block grant
    on alcohol prevention activities and treatment services, most of it
    spent on treatment.\33 Major prevention activities included a
    telephone hotline and neighborhood outreach centers.  APRA worked
    with other government agencies and community groups to provide
    prevention activities to youth and adults.

    The District also offers school children a systemwide drug prevention
    education program, using funding under the Safe and Drug Free Schools
    and Communities Act of 1994.  Administered by the District of
    Columbia Public Schools, the Substance Abuse Prevention Education
    (SAPE) Program spent about $1.7 million during fiscal year 1997,
    providing a variety of prevention activities to public, parochial,
    and private school students; teachers and other school staff;
    parents; and community groups.  The SAPE Program provides education,
    training, program development, and information dissemination to teach
    its participants about the use and abuse of alcohol and other drugs.

    --------------------
    \32 Overall substance abuse programs include alcohol and other drug
    prevention and treatment services.  For fiscal year 1997, the
    District's total expenditures for substance abuse services fell into
    four categories:  Medicaid (about $27 million), APRA services (about
    $24 million), criminal justice programs (about $7 million), and other
    agency programs, such as in the District's public schools (about $8
    million).

    \33 Under the Substance Abuse Prevention and Treatment Block Grant,
    which is awarded to the District by the U.S.  Department of Health
    and Human Services, a minimum of 37 percent of the total amount of
    the grant must be spent on alcohol treatment and prevention
    initiatives.

       CONCLUSIONS
    ----------------------------------------------------------- Letter :11

    Although the District's alcohol tax structure differs from the tax
    structures of most states, its combined taxes on alcohol are
    generally higher.  The District cannot conform its alcohol tax
    structure to those in all surrounding jurisdictions at the same time,
    because the tax structures among those neighboring jurisdictions
    differ significantly.  Moreover, the District would not be able to
    impose exactly the same effective tax rates as those in either
    Virginia or Montgomery County, because those effective rates are
    difficult to estimate precisely.  The District's taxes on beer are
    currently the highest in the region.  Increasing taxes on alcoholic
    beverages has been associated with reductions in alcohol consumption
    and related health and social problems.  The special geographic
    circumstances of the District--where all of its suburbs are in other
    jurisdictions--could weaken the effect that an increase in the
    District's taxes would have on local alcohol consumption.

    Strategies to prevent youth from using alcohol and adults from
    drinking excessively generally either try to educate individuals and
    build their resistance skills or use legal and regulatory controls to
    affect the availability and consumption of alcohol.  Although
    communities across the nation have invested significant resources in
    these efforts, there is mixed evidence about which prevention
    approaches are most effective.  The best current evidence suggests,
    however, that some legal and regulatory strategies, when enforced,
    can help reduce illegal drinking and alcohol-related problems.  If
    District officials are interested in investing in new alcohol
    prevention initiatives, it appears that greater efforts to enforce
    existing laws and regulations might produce the best short-term
    results.  At the same time, however, more rigorous evaluations of
    prevention strategies and programs would be needed in order to
    provide better information about the effectiveness of the full range
    of prevention approaches.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ----------------------------------------------------------- Letter :12

    We obtained written comments on a draft of this report from NIAAA,
    PRC, and SAMHSA; and oral comments from the District of Columbia's
    Office of Tax and Revenue, Department of Consumer and Regulatory
    Affairs, and Department of Health; the District of Columbia Financial
    Responsibility and Management Assistance Authority; and the Virginia
    Department of Alcohol Beverage Control.  NIAAA commented that in
    general, the report makes a good start in identifying the complex
    issues involved in designing programs and policies to reduce alcohol
    abuse in a specific jurisdiction, particularly one with the unique
    characteristics of the District.  It also provided detailed comments
    and suggestions for improving our presentation, which we incorporated
    where appropriate.  SAMHSA and the Department of Consumer and
    Regulatory Affairs said they generally agreed with the findings of
    the report.  The other oral comments involved minor wording
    clarifications, which we made where appropriate.

    Officials from PRC suggested several technical changes to the report
    that we incorporated where appropriate.  In response to their comment
    that our review of the literature did not sufficiently acknowledge
    the success of prevention strategies that combine educational and
    environmental interventions, we added the results of a major study
    that combined several strategies.  They also said that our review
    gave inadequate recognition to some limitations of the economic
    literature on the effects of alcohol taxes.  Their conclusion is that
    because of these limitations, no evidence exists regarding the
    effects of local alcohol taxes.  Our report makes clear that there is
    much uncertainty regarding the size of the effect that an increase in
    the District's alcohol taxes would have on consumption.  However, we
    believe that economic theory and the weight of the available
    empirical evidence suggest that a District tax increase likely would
    have some effect on alcohol consumption.  We made changes to address
    PRC's other concerns about our presentation of the alcohol prevention
    literature when the concerns were supported by the evidence we
    reviewed, including additional studies PRC provided.

    --------------------------------------------------------- Letter :12.1

    We are sending copies of this report to other appropriate
    congressional committees and other interested parties.  Copies will
    also be made available to others upon request.

    Major contributors to this report are listed in appendix VI.  If you
    have any questions, please contact Mr.  White on (202) 512-9110 or
    Ms.  Lillie-Blanton on (202) 512-7119.

    James R.  White
    Associate Director, Tax Policy
    and Administration Issues

    Marsha Lillie-Blanton
    Associate Director, Health Services
    Quality and Public Health Issues

    ALCOHOLIC BEVERAGE PRICING BY THE
    GOVERNMENTS OF VIRGINIA AND
    MONTGOMERY COUNTY
    =========================================================== Appendix I

       STATE OF VIRGINIA
    --------------------------------------------------------- Appendix I:1

    The Virginia Department of Alcoholic Beverage Control operates state
    stores that have the exclusive authority to sell liquor both to final
    consumers for their own off-premises use; and to resellers, such as
    hotels, restaurants, and taverns, that serve liquor on-premises.  The
    retail "shelf" prices in the state stores are uniform across the
    state.  Private sector resellers pay the same state shelf prices that
    final consumers do.  Final consumers pay the state sales tax on top
    of the shelf price.  Resellers add their own mark-ups on top of the
    state's shelf price and then add the sales tax to the prices they
    charge their customers.

    The shelf prices are computed by formula.  The department takes the
    delivered case cost (what it pays to its supplier); adds a mark-up
    (which is a percentage of the case cost, plus a $1 handling fee); and
    then adds its 20 percent ad valorem excise tax to arrive at the shelf
    price for the case.  The department's mark-up percentages vary by
    proof content and container size as follows:

                                   Table I.1

                       Virginia's Mark-up Percentages for
                                     Liquor

                                                       Mark-up percentages
                                                       -------------------
                                                                  Equal to
                                                         Less           or
                                                         than      greater
                                                          125         than
    Container size (in liters)                          proof    125 proof
    -------------------------------------------------  ------  -----------
    1.750                                                 45%          60%
    1.000                                                  50           60
    .750                                                   50           60
    .375                                                   55           67
    .200                                                   60           74
    .050                                                   30           74
    ----------------------------------------------------------------------
    Source:  State of Virginia, Department of Alcohol Beverage Control.

    In the mid-1980s the department experimented by lowering prices on
    popular liquor items in selected northern Virginia stores to be more
    competitive with the District.  The revenues for these stores
    declined, because the lower prices did not attract enough business
    away from the District to make up for the revenue that the stores
    lost from customers who had already been patronizing the stores.  The
    last price survey that the department conducted in the early 1990s
    showed that prices in the District were generally lower than in
    Virginia for popular liquor brands in 1.75 liter size bottles.  The
    survey also showed that prices on liquor sold in bottle sizes of 750
    ml or less were generally lower in Virginia.  Representatives from
    the District's Alcohol Retailers Association indicated that this
    varied relationship between liquor prices in the District and
    Virginia likely still existed.

       MONTGOMERY COUNTY, MARYLAND
    --------------------------------------------------------- Appendix I:2

    Montgomery County's Department of Liquor Control operates 22 stores
    that offer the full array of alcoholic beverage types.  These are the
    only stores in the county permitted to sell liquor for off-premises
    use.  Licensed private sector stores may sell beer and wine.  Hotels,
    restaurants, and clubs can serve all types of alcoholic beverages,
    but only for on-premises consumption.  Taverns are licensed to serve
    beer and wine but not liquor.  All of the licensed private sector
    sellers of alcohol are required to purchase all of their alcoholic
    beverages from dispensaries operated by the Department of Liquor
    Control.

    Montgomery County's Department of Liquor Control sets the wholesale
    prices that its dispensaries charge to both private sector licensees
    and to its own stores.  The board also sets the retail shelf prices
    that all of its own stores charge.  The county's price mark-ups vary
    by type of beverage.  In the case of liquor, the county begins with
    the delivered case cost that it pays to its suppliers, adds the state
    excise tax, and then adds a percentage mark-up to arrive at its
    wholesale price for the case.  These wholesale mark-ups vary by
    container size as follows:

                                   Table I.2

                    Montgomery County's Mark-up Percentages
                                   for Liquor

                                                                     Mark-
                                                                        up
                                                                    percen
    Container size (in liters)                                       tages
    --------------------------------------------------------------  ------
    1.750                                                            27.0%
    1.000                                                             27.0
    .500                                                              51.2
    .375                                                              51.2
    .200                                                              60.0
    .110                                                              60.0
    .050                                                              60.0
    ----------------------------------------------------------------------
    Source:  Distilled Spirits Council of the United States.

    For its own stores, the county adds a further mark-up of 18 percent
    to the wholesale case price to arrive at the retail shelf price.
    Consumers pay the 5 percent state sale tax on this price.  The same
    procedure is used for wine, except that a different state excise tax
    rate applies, and the county uses different wholesale and retail
    mark-ups:  35 percent and 28 percent.

    Beer wholesale and retail prices are not established by formal
    mark-up rules.  The county relies on price surveys of wholesale and
    retail prices in nearby jurisdictions for guidance in setting beer
    prices.

    In the limited time available to us, we could not complete a retail
    price survey of sufficient quality that would enable us to make a
    useful comparison of retail liquor prices in Montgomery County with
    retail prices in the private sector.  However, because Maryland
    requires all wholesalers operating in the state to (1) publish the
    prices that they charge retailers for liquor and wine and (2) charge
    the same price to all retailers in the state (excluding Montgomery
    County), we were able to compare the wholesale prices that the county
    charges for those beverages with the wholesale prices that would have
    been charged in the county if the control system did not exist.\1

    Our comparison of prices in effect during January 1998 indicates that
    Montgomery County's wholesale prices for some alcoholic beverage
    items are higher than those of private sector wholesalers operating
    in the rest of Maryland, but for other items the county's prices are
    lower.\2 The county's prices were higher than those of the private
    sector wholesalers for 9 of the 14 liquor items that either the
    Virginia ABC Commission or DISCUS identified as top sellers.  The
    county's wholesale prices also were higher for 15 out of the 28
    liquor items and 15 out of the 29 wine items that we randomly
    selected from the county's price lists.\3 In the absence of
    information on sales volumes for each beverage item, we were not able
    to determine whether Montgomery County's average prices for liquor
    and wine are higher or lower than they would be if the county did not
    control prices.  Consequently, we were not able to determine whether
    the average effective tax rate on alcohol in the county is above or
    below the average statutory tax rate applicable in the county.  The
    fact that the relationship between the county's prices and the
    private sector prices varies across beverage items means that the
    relationship between effective and statutory tax rates on alcohol
    sold in Montgomery County is likely to vary across beverage items
    also.

    --------------------
    \1 Each alcoholic beverage item sold in Maryland is carried by only
    one private sector wholesaler.  Therefore, there was only one private
    sector price that we needed to compare against the Montgomery County
    price.

    \2 Both Montgomery County and the private sector wholesalers offer
    various discounted and special prices.  We compared nondiscounted,
    nonspecial prices only.

    \3 For 17 of the 42 liquor items in our comparison, Montgomery
    County's prices were more than 5 percent greater than those of the
    private sector wholesalers, and for 8 liquor items the county's
    prices were more than 5 percent lower than the private sector prices.
    For 11 of the 29 wine items, Montgomery County's prices were more
    than 5 percent greater than those of the private sector wholesalers,
    and for 10 wine items the county's prices were more than 5 percent
    lower than the private sector prices.

    STATE ALCOHOLIC BEVERAGE EXCISE
    TAX RATES AND STATE SALES TAX
    RATES APPLIED TO ALCOHOL
    ========================================================== Appendix II

              Excise tax rates ($ per
                      gallon)
             -------------------------
                                           State sales
                                                tax on
                                               alcohol
    State     Beer    Liquor    Wine         (percent)  Other tax rates
    -------  -------  -------  -------  --------------  ----------------------------
    Alabama   $0.53     \a      $1.70            4.000  Wine: over 14% alcohol
                                                         content sold through state
                                                         stores
    Alaska    0.35     $5.60    0.85              None  Liquor: under 21% alcohol
                                                         content, $0.85 per gallon
    Arizona   0.16     3.00     0.84             5.000
    Arkansa   0.23     2.50     0.75             4.625  Beer: under 3.2% alcohol
     s                                                   content, $0.16 per gallon;
                                                         over 3.2% and under 5%
                                                         alcohol content, $.23 per
                                                         gallon; $0.008 per gallon
                                                         enforcement tax; malt
                                                         liquor, $0.20 per gallon;
                                                         10% on-premises gross
                                                         receipts tax (for clubs).

                                                         Wine: under 5% alcohol
                                                         content, $0.25 per gallon;
                                                         over 5% alcohol content,
                                                         $0.75 per gallon; $0.05 per
                                                         case tax; 3% off-premises
                                                         and 10% on-premises gross
                                                         receipts tax (for clubs).

                                                         Liquor: under 5% alcohol
                                                         content, $0.50 per gallon;
                                                         over 5% but under 21%
                                                         alcohol content, $1.00 per
                                                         gallon; 3% off-premises and
                                                         14% on-premises gross
                                                         receipts tax.
    Califor   0.20     3.30     0.20             6.000  Liquor: over 50% alcohol
     nia                                                 content, $6.60 per gallon

                                                         Wine: sparkling wine, $0.30
                                                         per gallon
    Colorad   0.08     2.28     0.32             3.000
     o
    Connect   0.19     4.50     0.60             6.000  Liquor: under 7% alcohol
     icut                                                content, $2.05 per gallon

                                                         Wine: over 21% alcohol
                                                         content and sparkling wine,
                                                         $1.50 per gallon
    Delawar   0.16     3.75     0.97              None  Liquor: under 25% alcohol
     e                                                   content, $2.50 per gallon
    Florida   0.48     6.50     2.25             6.000  Liquor: alcohol content
                                                         under 17.259%, $2.25 per
                                                         gallon; alcohol content
                                                         over 55.78%, $9.53 per
                                                         gallon

                                                         Liquor: retail tax $0.10
                                                         per ounce for on-premises
                                                         consumption

                                                         Wine: alcohol content over
                                                         17.259%, $3.00 per gallon;
                                                         sparkling wine, $3.50 per
                                                         gallon

                                                         Wine: retail tax $0.10 per
                                                         4 ounce on-premises
                                                         consumption

                                                         Beer: retail tax $0.04 per
                                                         12 ounce on-premises
                                                         consumption
    Georgia   0.48     3.79     1.51             4.000  Liquor: $0.83 per gallon
                                                         local tax

                                                         Wine: alcohol content over
                                                         14%, $2.54 per gallon,
                                                         $0.83 per gallon local tax

                                                         Beer: $0.53 per gallon
                                                         local tax
    Hawaii    0.92     5.92     1.36             4.000  Wine: sparkling wine, $2.09
                                                         per gallon and wine
                                                         coolers, $0.84 per gallon

                                                         Beer: $0.53 per gallon for
                                                         draft beer
    Idaho     0.15      \a      0.45             5.000  Beer: alcohol content over
                                                         4%-$0.45 per gallon
    Illinoi   0.07     2.00     0.23             6.250  Liquor: alcohol content
     s                                                   under 14%, $0.23 per
                                                         gallon

                                                         Wine: alcohol content over
                                                         14%, $0.60 per gallon
    Indiana   0.12     2.68     0.47             5.000  Liquor: alcohol content
                                                         under 15%, $0.47 per
                                                         gallon

                                                         Wine: alcohol content over
                                                         21%, $2.68 per gallon
    Iowa      0.19      \a      1.75             5.000  Wine: alcohol content under
                                                         5%, $0.19 per gallon
    Kansas    0.18     2.50     0.30        8.0/10.0\b  Wine: alcohol content over
                                                         14%, $0.75 per gallon

                                                         Beer: alcohol content under
                                                         3.2%, a sales tax of 4.25%
    Kentuck   0.08     1.92     0.50             6.000  Liquor: alcohol content
     y                                                   under 6%, $0.25 per gallon;
                                                         $0.05 per case

                                                         Liquor, beer, and wine: 9%
                                                         wholesale tax
    Louisia   0.32     2.50     0.11             4.000  Liquor: alcohol content
     na                                                  under 6%, $0.32 per gallon

                                                         Wine: alcohol content from
                                                         14% to 24%, $0.23 per
                                                         gallon, over 24% and
                                                         sparkling wine, $1.59 per
                                                         gallon

                                                         Beer: $0.048 per gallon
                                                         local sales tax
    Maine     0.35      \a      0.60         6.0/7.0\b  Wine: alcohol content over
                                                         15.5% , sold through state
                                                         stores; sparkling wine,
                                                         $1.25 per gallon

                                                         Liquor: Sold only through
                                                         state stores if alcohol
                                                         content is over 4%

                                                         Beer: Sold through private
                                                         outlets
    Marylan   0.09     1.50     0.40             5.000
     d
    Massach   0.11     4.05     0.55             5.000  Liquor: alcohol content
     usetts                                              under 15%, $1.10 per
                                                         gallon, over 50%, $4.05 per
                                                         proof gallon; 0.57% gross
                                                         receipts tax on private
                                                         club sales

                                                         Wine: sparkling wine, $0.70
                                                         per gallon

                                                         Beer: 0.57% gross receipts
                                                         tax on private club sales
    Michiga   0.20      \a      0.51             6.000  Wine: alcohol content over
     n                                                   16%, $0.76 per gallon
    Minneso   0.15     5.03     0.30             8.500  Liquor: $0.01 per bottle
     ta                                                  (except miniatures)

                                                         Wine: alcohol content 14%
                                                         to 21%, $0.95 per gallon;
                                                         under 24% and sparkling
                                                         wine, $1.82 per gallon;
                                                         $0.01 per bottle (except
                                                         miniatures)

                                                         Beer: alcohol content under
                                                         3.2%, $0.077 per gallon
    Mississ   0.43      \a      0.35             7.000
     ippi
    Missour   0.06     2.00     0.36             4.225
     i
    Montana   0.14      \a      1.06              None  Wine: alcohol content over
                                                         16%, sold through state
                                                         stores; 7% surtax

                                                         Beer: 7% surtax
    Nebrask   0.23     3.00     0.75             5.000  Wine: alcohol content over
     a                                                   14%, $1.35 per gallon
    Nevada    0.09     2.05     0.40             6.500  Liquor: alcohol content
                                                         under 14%, $0.40 per gallon
                                                         and under 21%, $0.75 per
                                                         gallon

                                                         Wine: alcohol content 14%
                                                         to 22%, $0.75 per gallon;
                                                         over 22%-$2.05 per gallon
    New       0.30      \a       \a               None  Liquor and wine: all sales
     Hampsh                                              are through state stores
     ire
    New       0.12     4.40     0.70             6.000
     Jersey
    New       0.41     6.06     1.70             5.000  Wine: alcohol content over
     Mexico                                              14%, $6.06 per gallon
    New       0.16     6.44     0.19             4.000  Liquor: alcohol content
     York                                                under 24%, $2.54 per gallon
    North     0.48      \a      0.79             4.000  Liquor: sales tax applies to
     Caroli                                              on-premises consumption
     na                                                  only

                                                         Wine: alcohol content over
                                                         17%, $0.91 per gallon
    North     0.16     2.50     0.50             7.000  Wine: alcohol content over
     Dakota                                              17%, $0.60 per gallon;
                                                         sparkling wine, $1 per
                                                         gallon
    Ohio      0.18      \a      0.32             5.000  Wine: alcohol content over
                                                         14%, $1 per gallon;
                                                         vermouth, $1.10 per gallon;
                                                         sparkling wine, $1.50 per
                                                         gallon
    Oklahom   0.40     5.56     0.72        4.5/12.0\b  Liquor: $1 per bottle on-
     a                                                   premises tax

                                                         Wine: alcohol content over
                                                         14%, $1.44 per gallon;
                                                         sparkling wine $2.08 per
                                                         gallon; $1 per bottle on-
                                                         premises

                                                         Beer: alcohol content under
                                                         3.2%, $0.36 per gallon; $1
                                                         per case on-premises
    Oregon    0.08      \a      0.67              None  Wine: alcohol content over
                                                         14%, $0.77 per gallon
    Pennsyl   0.08      \a       \a              6.000  Liquor and wine: all sold
     vania                                               through state stores
    Rhode     0.10     3.75     0.60             7.000  Wine: sparkling wine, $0.75
     Island                                              per gallon
    South     0.77     2.72     0.90             5.000  Liquor: $5.36 per case
     Caroli                                              charge and 9% surtax on
     na                                                  retail "shelf" price

                                                         Wine: $0.18 per gallon
                                                         additional tax
    South     0.27     3.93     0.93             4.000  Liquor: alcohol content
     Dakota                                              under 14%, $0.93 per gallon
                                                         and 2% wholesale tax

                                                         Wine: alcohol content 14%
                                                         to 20%, $1.45 per gallon,
                                                         over 21% and sparkling
                                                         wine, $2.07 per gallon and
                                                         2% wholesale tax
    Tenness   0.13     4.00     1.10      6.0/15.0\b,c  Liquor and wine: $0.15 per
     ee                                                  case charge; alcohol
                                                         content under 7%, $1.10 per
                                                         gallon

                                                         Beer: 17% wholesale tax
    Texas     0.19     2.40     0.20       6.25/14.0\b  Wine: alcohol content over
                                                         14%, $0.408 per gallon

                                                         Beer: alcohol content under
                                                         4%, $0.198 per gallon
    Utah      0.35      \a       \a              4.750  Liquor and wine: sold
                                                         through state stores only

                                                         Beer: alcohol content over
                                                         3.2%, sold only in state
                                                         stores
    Vermont   0.27      \a      0.55             5.000  Wine: alcohol content over
                                                         16%, sold through state
                                                         stores

                                                         Beer: alcohol content 6% to
                                                         8% -$0.55; 10% on-premise
                                                         sales tax
    Virgini   0.26      \a      1.51             4.500  Wine: alcohol content under
     a                                                   4%, $0.2565 per gallon and
                                                         over 14%, sold through
                                                         state stores
    Washing   0.15      \a      0.87             6.500  Wine: alcohol content over
     ton                                                 14%, $1.72 per gallon

                                                         Beer: state excise tax plus
                                                         $4.78 per barrel additional
                                                         tax
    West      0.18      \a      1.00             6.000  Wine: alcohol content over
     Virgin                                              14%, sold through state
     ia                                                  stores
    Wiscons   0.06     3.25     0.25             5.000  Wine: alcohol content over
     in                                                  14%, $0.45 per gallon
    Wyoming   0.02      \a       \a                4.0  Liquor and wine: all sales
                                                         through state stores
    Distric   0.09     1.50     0.30        8.0/10.0\b  Wine: alcohol content over
     t of                                                14%, $0.40 per gallon and
     Columb                                              sparkling wine, $0.45 per
     ia                                                  gallon
    --------------------------------------------------------------------------------
    \a In 18 states, the government directly controls the sales of liquor
    and, in some cases, beer and wine.  Revenue in these states is
    generated from various taxes, fees, and alcohol beverage receipts.

    \b The first rate is on sales for off-premises consumption; the
    second rate is on sales for on-premises consumption.

    \c The on-premises sales tax rate does not apply to beer.

    Source:  Federation of Tax Administrators, "State Alcoholic Beverage
    Excise Tax Rates as of January 1, 1998"; and "Tax Briefs" prepared by
    the Distilled Spirits Council of the United States, December 1996.

    EMPIRICAL EVIDENCE RELATING TO THE
    EFFECTS OF ALCOHOL TAX INCREASES
    ON ALCOHOL CONSUMPTION AND
    ASSOCIATED BEHAVIOR
    ========================================================= Appendix III

    Empirical research conducted since the early 1980s generally
    concludes that increases in the prices of alcoholic beverages reduce
    drinking; heavy drinking; and related outcomes, such as motor vehicle
    and other accidents; liver cirrhosis mortality; "crime"; and reduced
    education, employment, and labor productivity.\4 According to a
    review of recent research, price-induced reductions in alcohol
    consumption "are not limited to infrequent, light, or moderate
    drinkers, but also occur among frequent and heavy drinkers." The
    review also finds "youth and young adults, the age groups where
    alcohol-related problems are disproportionately high, are generally
    more responsive to increases in price than are adults."\5

    --------------------
    \4 Chaloupka et al., "The Effects of Price on the Consequences of
    Alcohol Use and Abuse," in M.  Galanter, ed.  Recent Developments in
    Alcoholism, vol.  14:  The Consequences of Alcoholism:  Medical,
    Neuropsychiatric, Economic, Cross-Cultural, New York:  Plenum
    Publishing Corp.  forthcoming; Chaloupka et al., "The Effects of
    Price on Alcohol Consumption," Alcohol Health and Research World,
    forthcoming.

    \5 Chaloupka et al., Alcohol Health and Research World, forthcoming.

       RESEARCHERS AGREE THAT ALCOHOL
       TAXES AFFECT CONSUMPTION, BUT
       EMPIRICAL ESTIMATES VARY
    ------------------------------------------------------- Appendix III:1

    Higher prices for alcoholic beverages could be achieved by higher
    taxation.  There is a clear presumption that higher taxes on
    alcoholic beverages are correlated with higher prices for those
    beverages.  In general, however, the link between alcohol taxes and
    alcohol prices requires further study.  Economists believe that the
    extent to which any excise tax increase is passed along to consumers
    varies depending on the characteristics of the markets in which
    consumers purchase their beverages.\6 Such characteristics would
    include how responsive market demand is to price changes and how much
    competition among sellers exists in the market.  Most researchers
    studying the economics of alcohol consumption assume that the full
    amount of the excise tax increase is passed along to consumers in the
    form of higher prices.  In the absence of more complete evidence,
    researchers believe these are the best assumptions that can be made.
    Many researchers have used the variation in state-level excise tax
    rates across states as a proxy for the variation of alcohol prices
    across states.

    Researchers have estimated a range of values for the degree to which
    consumption of beer, wine, or liquor responds to changes in the
    prices of these beverages.  A comprehensive survey of empirical
    research conducted between 1983 and 1992 on the effect of price
    increases on alcohol consumption found that in response to a 10
    percent beer price increase, beer consumption would decline by
    between 1.2 percent and 10.7 percent, with most studies estimating
    that the change in consumption would be less than 5 percent.\7 \8

    Generally, studies have tended to show that liquor and wine
    consumption is somewhat more responsive to price changes than is beer
    consumption.  Experts estimated that liquor consumption would decline
    by between 5 percent and 10 percent in response to a 10 percent
    liquor price increase, but most of the estimates for wine were in the
    range of 5 to 20 percent.\9

    Other, generally more recent, studies have used data from surveys of
    individual alcohol consumption.  These studies have found higher
    estimates for the consumption response to an increase in the price of
    alcohol.\10 NIAAA's 1997 report to Congress reviewed and summarized
    the post-1992 studies of the effect of alcohol price increases on
    consumption.\11 According to this report, there continues to be
    substantial variation in estimates of the responsiveness of alcohol
    consumption to changes in alcohol prices.

    One reason why the effects of price increases on alcohol consumption
    remain uncertain is the quality of the data that researchers have to
    work with.  To make more precise estimates of the effects of price
    increases on alcohol consumption, one would need to use accurate
    measures of the prices that individual consumers pay for various
    types of alcohol rather than consumption data aggregated to a state
    or national level.  However, collecting price data for a large sample
    of consumers is difficult and costly.\12 There may also be problems
    with the data on alcohol consumption that have been used in the
    empirical literature--self-reported consumption data--which tend to
    understate actual consumption.\13 The use of alternatives to
    self-reported consumption data, such as expenditures on alcoholic
    beverages, may introduce a different set of errors and biases.\14

    --------------------
    \6 Kenkel, Donald and Willard Manning, "Perspectives on Alcohol
    Taxation," Alcohol Health and Research World, 20(4), 1996, pp.
    233-234.

    \7 Leung, Siu Fai and Charles Phelps, "My Kingdom for a Drink.  .  .
    ?  A Review of Estimates of the Price Sensitivity of Demand for
    Alcoholic Beverages," in Hilton, Michael and Gregory Bloss, eds.
    Economics and the Prevention of Alcohol-Related Problems, National
    Institute on Alcohol Abuse and Alcoholism Research Monograph No.  25,
    NIH Pub.  No.  93-3513, U.S.  Department of Health and Human
    Services, 1993.

    \8 Nine of these studies estimated the sensitivity of beer
    consumption to beer prices and got a statistically significant
    result.  All but one used consumption data aggregated to the state or
    national level, rather than individual consumption data.

    \9 National Institute on Alcohol Abuse and Alcoholism, "Economic
    Aspects of Alcohol Use and Alcohol-Related Problems," Chapter 8 of
    Alcohol and Health:  Ninth Special Report to the U.S.  Congress, U.S.
    Dept.  of Health and Human Services, June 1997, pp.  282, 284-285.

    \10 Grossman, Michael, "The Economic Analysis of Addictive Behavior,"
    in Hilton, Michael and Gregory Bloss, eds.  Economics and the
    Prevention of Alcohol-Related Problems, NIAAA Research Monograph No.
    25, National Institutes of Health Pub.  No.  93-3513, U.S.
    Department of Health and Human Services, 1993, pp.  91, 114;
    Chaloupka, Frank, "The Effects of Price on Alcohol Consumption,"
    forthcoming, 1997, p.  5.

    \11 NIAAA, "Economic Aspects of Alcohol Use and Alcohol-Related
    Problems," Chapter 8 of Alcohol and Health:  Ninth Special Report to
    the U.S.  Congress, U.S.  Dept.  of Health and Human Services, June
    1997.

    \12 In the absence of suitable data on alcohol prices, many
    researchers have used the variation in state-level excise tax rates
    as a proxy for the variation of alcohol prices across states.  When
    using tax variables as proxies for price variables in studies of
    alcohol consumption, one needs to control for all state-specific
    factors that might affect both alcohol tax rates and alcohol
    consumption.  For example, religious or cultural factors might cause
    certain states to have both lower than average alcohol consumption
    and higher than average tax rates on alcohol.  The alternative,
    computing alcohol price indices from expenditure and quantity data,
    is also subject to problems.  For example, see Johnson et al.,
    "Alternative Approaches to the Measurement of Consumption and Price
    of Alcoholic Beverages, Canada, 1957-1983," Journal of Studies on
    Alcohol, 51(1), 1990, p.  82.

    \13 Comparisons of representative survey data with aggregate alcohol
    sales data indicate that self-reported alcohol consumption levels
    tend to underestimate actual consumption.  If the reporting errors in
    drinking levels are correlated with drinking levels and other
    relevant variables, statistical estimates based on these data may be
    biased.  Because the relationships between reporting errors and other
    variables are not well understood, it is not clear how large the
    resulting biases may be or how they might be mitigated.

    \14 A consumer's high overall expenditure on alcohol may result from
    larger levels of consumption of lower priced beverages or from
    smaller levels of consumption of relatively higher priced beverages.

       EVIDENCE INDICATES THAT BOTH
       LIGHT AND HEAVY DRINKERS ARE
       RESPONSIVE TO ALCOHOL PRICES,
       ALTHOUGH SOME OF THE HEAVIEST
       DRINKERS MAY BE LESS RESPONSIVE
    ------------------------------------------------------- Appendix III:2

    Light, moderate, and fairly heavy drinkers respond to alcohol price
    increases by cutting back on consumption.  However, among a
    relatively small number of the very heaviest drinkers--those often
    considered to be addicted to alcohol--some researchers have found
    very little, if any, response to changes in price, while others have
    found some price responsiveness.  One study found that consumers in
    the middle of the distribution of drinkers were the most sensitive to
    price changes, and very light and very heavy drinkers were less
    sensitive.  This study also found that the higher the price of
    alcohol, the less likely consumers were to have any days of heavy
    drinking.\15 Another study that examined the effects of alcohol
    prices on the frequency of heavy drinking and drunk driving found
    that a higher price of alcohol was associated with significant
    reductions in the frequency of heavy drinking for males of all ages,
    for females of all ages, and for females aged 21 and younger, but not
    for males aged 21 and younger.\16

    In another study, the same researcher has found that reported
    familiarity with the health consequences of drinking was important in
    determining the extent to which the heaviest drinkers responded to
    price changes.  The least-informed heavy drinkers did not appear to
    be sensitive to price changes, but the best-informed heavy drinkers
    appeared to be very sensitive.  The author notes that the
    heaviest-drinking, least-informed consumers might be alcoholics who
    are in denial over the adverse consequences of drinking.\17 He and a
    colleague also note that his finding is consistent with results of
    the Manning et al.  study that found that very light and very heavy
    drinkers were less sensitive to price than others.  The least
    well-informed consumers in his study were, on average, also very
    heavy drinkers.

    --------------------
    \15 Manning, Willard et al., "The Demand For Alcohol:  The
    Differential Response to Price," Journal of Health Economics, 14(2),
    1995, pp.  137-139.

    \16 Kenkel, Donald, "Drinking, Driving, and Deterrence:  The
    Effectiveness and Social Costs of Alternative Policies," Journal of
    Law and Economics, XXXVI, October 1993, pp.  889-890.

    \17 Kenkel, Donald, "New Estimates of the Optimal Tax on Alcohol,
    Economic Inquiry, XXXIV, April 1996, p.  307.

       YOUTH AND YOUNG ADULT ALCOHOL
       CONSUMPTION MAY BE MORE
       RESPONSIVE TO PRICE THAN THAT
       OF OLDER DRINKERS
    ------------------------------------------------------- Appendix III:3

    Most researchers have found that youth and young adults exhibit more
    responsiveness to changes in alcohol prices than do older drinkers.
    One explanation of the greater price sensitivity of younger drinkers
    is that younger drinkers may have less income to spend than their
    older counterparts.  Whatever the reason for the greater price
    sensitivity of younger drinkers, there may be public policy
    implications.  If older drinkers--those with a long-term lifestyle
    that includes heavy drinking--are less sensitive to price while
    younger drinkers are more sensitive to price, higher alcohol taxes
    may have a two-fold effect.  Higher alcohol prices may be an
    effective policy for reducing youth alcohol consumption and its
    related problems, as well as in reducing the likelihood of developing
    a long-term lifestyle that includes heavy drinking.\18

    Most researchers have found that beer is the beverage of choice among
    youths who drink alcoholic beverages.\19 Some researchers have
    concluded that beer is disproportionately preferred by higher risk
    groups--for example, by those who drink a lot during a typical
    session far more than by those who drink moderately.  It also has
    been noted that beer drinkers are more likely to drive while
    intoxicated than drinkers of other alcoholic beverages.\20
    Additionally (as noted above) researchers believe that the
    responsiveness of alcohol consumption to changes in its price is
    greater for youth than for adults.\21 One study estimated that a
    10-percent increase in the price of beer could cause youths'
    consumption to decline by 23 percent.\22 For those 17 to 29, another
    study found that on average, a 10-percent increase in the price of
    beer would lead to about a 7-percent decrease in consumption in the
    long run.\23 Yet another study found that after the states increased
    their legal drinking ages to 21 in the late 1980s, the price
    sensitivity of youth alcohol use fell.\24

    Recent studies show that the drinking behavior of youths who are
    frequent, heavy, or binge drinkers is especially sensitive to alcohol
    price changes.\25 One study found that a 10-percent decline in the
    price of beer would increase the number of youths (aged 16 to 21) who
    drink beer 4 to 7 times per week by about 10 percent.  The same
    10-percent decline in price would cause the number of youths (aged 16
    to 21) who consumed no beer per week to fall by about 7 percent.\26
    Another study by some of the same experts found that the number of
    youths who drink six or more cans of beer on a typical drinking day
    would decline by about 31 percent in response to a price increase of
    10 percent; the number of youths who drink only 1 to 2 cans of beer
    on a typical drinking day would decline by about 12 percent in
    response to a price increase of 10 percent.\27 In contrast, another
    recent study suggests that prices would have little impact on
    drinking and binge drinking among male college students.\28 The
    effects of alcohol taxation on heavy and binge drinking are of
    special interest because of the high fatality rates from drunken
    driving that are associated with it.  Alcohol involvement in motor
    vehicle accidents is estimated to be three times higher in the 18- to
    20-year-old group than it is in the general population.\29 Results
    from other studies indicate binge drinking and heavy drinking are
    inversely related to price among adults as well.\30

    --------------------
    \18 Chaloupka, Frank and Henry Wechsler, "Binge Drinking in College:
    The Impact of Price, Availability, and Alcohol Control Policies,"
    Contemporary Economic Policy, 14(4), October 1996, pp.  112-124;
    Kenkel, Donald, personal communication, 1998, p.  4.

    \19 Coate, Douglas and Michael Grossman, "Effects of Alcoholic
    Beverage Prices and Legal Drinking Ages on Youth Alcohol Use,"
    Journal of Law and Economics, XXXI, April 1988, p.  152; Berger, Dale
    and John Snortum, "Alcoholic Beverage Preferences of Drinking-Driving
    Violators," Journal of Studies on Alcohol, 46(3), 1985, p.  232;
    Grossman et al., 1998, p.  40; Saffer, Henry and Michael Grossman,
    "Beer Taxes, the Legal Drinking Age, and Youth Motor Vehicle
    Fatalities," The Journal of Legal Studies, XVI, June 1987, pp.
    353-354; Chaloupka and Wechsler, 1996, p.  116.

    \20 Berger and Snortum, pp.  232-239.

    \21 Kenkel 1993, p.  895; Leung and Phelps, p.  23; Chaloupka, Frank,
    personal communication, 1998, p.  1.

    \22 Phelps, Charles, "Death and Taxes:  An Opportunity for
    Substitution," Journal of Health Economics, 7, 1988, p.  10.

    \23 Grossman, Michael et al., "An Empirical Analysis of Alcohol
    Addiction:  Results from the Monitoring the Future Panels, Economic
    Inquiry, XXXVI, January 1998, pp.  40, 45.

    \24 Laixuthai, Adit and Frank Chaloupka, Youth Alcohol Use and Public
    Policy, Cambridge, MA:  National Bureau of Economic Research, Working
    Paper No.  4278, February 1993, pp.  1, 14-16.

    \25 Coate, Douglas and Michael Grossman, "Effects of Alcoholic
    Beverage Prices and Legal Drinking Ages on Youth Alcohol Use,"
    Journal of Law and Economics, XXXI, April 1988, pp.  145, 151, 164.;
    Grossman, Michael, "The Economic Analysis of Addictive Behavior," in
    Hilton, Michael and Gregory Bloss, eds.  Economics and the Prevention
    of Alcohol-Related Problems, NIAAA Research Monograph No.  25, NIH
    Pub.  No.  93-3513, U.S.  Department of Health and Human Services,
    1993, pp.  109, 111, 114-115; Leung and Phelps, pp.  19-20; NIAAA, p.
    282; Phelps, pp.  9-10.

    \26 Coate and Grossman, 1988, pp.  145, 151, 164.

    \27 Leung and Phelps, pp.  18-20.

    \28 Chaloupka and Wechsler, 1996, p.  120.

    \29 Chaloupka et al., "Alcohol Control Policies and Motor-Vehicle
    Fatalities," Journal of Legal Studies, XXII, January 1993, pp.  165,
    181.

    \30 Manning, Willard et al., p.  139; Kenkel, pp.  889-890.

       EVIDENCE SUGGESTS THAT
       INCREASING TAXES MAY REDUCE
       SOME HARMFUL CONSEQUENCES OF
       DRINKING
    ------------------------------------------------------- Appendix III:4

    A number of studies have examined the relationship between alcohol
    prices or tax rates and adverse consequences associated with alcohol
    misuse.  According to a summary of the most recent research, it has
    been clearly demonstrated that increases in alcohol prices "can
    significantly reduce many of the problems associated with alcohol
    abuse, as well as improve educational attainment."\31 Problems
    associated with alcohol use and abuse include drinking and driving
    and motor vehicle accidents, liver cirrhosis and other health
    effects, decreased educational attainment and employment, and
    violence and other crime.\32

    One of the most studied relationships is the relation between alcohol
    use and auto accidents and fatalities.  There is a consensus in the
    empirical literature that an increase in the price of alcoholic
    beverages would reduce the number of lives lost in vehicle
    fatalities.\33 According to one study, the occurrence of drunk
    driving declines as its full price increases.\34 The study also found
    the risk of death or injury from an auto accident rises precipitously
    with the intensity of drinking; i.e., binge drinking.\35 Another
    study found that higher state beer excise tax rates were associated
    with reductions in motor vehicle fatalities for youths aged 15
    through 24.\36 Likewise, in another study the state beer excise tax
    rate exhibited large negative and statistically significant
    associations with total driver fatalities, night driver fatalities,
    and alcohol-involved fatalities for both drivers of all ages and
    drivers 18 to 20 years old.\37 Other researchers found higher state
    beer tax rates to be weakly associated with a reduced propensity to
    drive drunk.\38

    A recent study of the relation between beer prices and drunken
    driving included a relatively comprehensive set of explanatory
    variables and examined a variety of different model specifications.
    This study found that a 10-percent increase in the price of beer
    would result in an almost 10-percent decrease in the fatality rate
    from drunken driving, a 14-percent decrease in the fatality rate from
    nighttime drunken driving, and a 14-percent decrease in the fatality
    rate from drunken driving for those aged 18 to 20.\39 Another recent
    study estimated that alcohol prices have a negative and significant
    effect on binge drinking--the behavior that leads to drunken
    driving--with a 10-percent increase in the price of alcohol leading
    to a 9-percent decrease in the expected number of binge episodes per
    month.\40

    Two studies have found that the excise tax rate on liquor has a
    negative and significant effect on the liver cirrhosis death rate.\41
    In contrast, other researchers found higher alcohol prices were not
    significantly related to lower death rates from liver cirrhosis.
    These studies did find a significant negative relationship between
    alcohol prices and suicide rates and mortality rates from other
    cancers to which alcohol contributes.  They also found weak or
    insignificant effects of alcohol price on death rates from homicide
    and from falls, fires, and other accidents.\42

    Two recent studies investigated the relationship between alcohol use
    and crime.\43 These researchers found significant relations between
    the real tax rate on beer and the incidence of rape and robbery.
    Other recent studies examined the impact of alcohol use and heavy use
    on the level of education attained.\44 These researchers note that
    there is evidence that heavy drinking is associated with reductions
    in the average number of years of schooling completed and reduction
    in employment as well as a tendency toward alcohol abuse in later
    life.  They observe that the bulk of evidence supports the conclusion
    that increasing alcohol taxes would extend life expectancy.\45
    Several other experts have suggested that people who misuse alcohol
    are less likely to be employed and tend to have lower incomes than
    people who do not.\46

    --------------------
    \31 Chaloupka, Frank et al., in Recent Developments in Alcoholism,
    forthcoming, pp.  21-22.

    \32 Chaloupka, Frank et al., in Recent Developments in Alcoholism,
    forthcoming, pp.  9-10, 15-21.

    \33 Phelps, 1988; Kenkel, 1993.

    \34 Mullahy, John and Jody Sindelar, "Do Drinkers Know When to Say
    When?  An Empirical Analysis of Drunk Driving," Economic Inquiry,
    XXXII, July 1994, pp.  383-394.  The full price of drunk driving
    includes not only the cost of purchasing alcoholic beverages, but
    also the costs of driving while intoxicated.  The latter costs can
    include license revocation, fines, imprisonment, and social stigma.

    \35 The study found that youths who have consumed 6 or more drinks
    and then drive face a 100-fold increase in risk of death, compared
    with nondrinkers.

    \36 Saffer, Henry and Michael Grossman, "Beer Taxes, the Legal
    Drinking Age, and Youth Motor Vehicle Fatalities," Journal of Legal
    Studies, June 1987, pp.  351-353, 373-374.

    \37 Chaloupka et al., 1993.  Drinkers who prefer beer are more likely
    to drive while intoxicated than those who prefer wine or liquor.

    \38 Mullahy and Sindelar, pp.  383-394.

    \39 Ruhm, C.J., "Alcohol Policies and Highway Vehicle Fatalities,"
    Journal of Health Economics, 15(4), 1996, pp.  435-454.

    \40 Sloan, F.  et al., "Effects of Tort Liability and Insurance on
    Heavy Drinking and Drinking and Driving," Journal of Law and
    Economics, 38(1), 1995, pp.  49-78.

    \41 Chaloupka et al., "Alcohol Addiction:  An Econometric Analysis,"
    presented at the annual meeting of the Allied Social Science
    Associations, Anaheim, CA, December 1992; Cook, Philip and George
    Tauchen, "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal
    of Economics, 12, 1982, p.  379.

    \42 Sloan, F.  et al., "Effects of Prices, Civil and Criminal
    Sanctions, and Law Enforcement on Alcohol-Related Mortality," Journal
    of Studies on Alcohol, 55, 1994, pp.  454-465.

    \43 Chaloupka, Frank and Henry Saffer, "Alcohol, Illegal Drugs,
    Public Policy and Crime," presented at the annual meeting of the
    Western Economic Association, San Francisco, CA, July 1992; Cook,
    Philip and Michael Moore, "Economic Perspectives on Reducing
    Alcohol-Related Violence," in Martin, S.  E.  ed., Alcohol and
    Interpersonal Violence:  Fostering Multidisciplinary Perspectives,
    Washington, DC:
    U.  S.  GPO, 1993, p.  193.

    \44 Cook, Philip and Michael Moore, "Drinking and Schooling," Journal
    of Health Economics, 12, 1993, p.  411; Yamada, T.  et al., "The
    Impact of Alcohol Consumption and Marijuana Use on High School
    Graduation," Health Economics, 5, 1996, p.  77.

    \45 Cook, Philip and Michael Moore, "Taxation of Alcoholic
    Beverages," in Hilton, Michael and Gregory Bloss, eds., Economics and
    the Prevention of Alcohol-Related Problems, NIAAA Research Monograph
    No.  25, NIH Pub.  No.  93-3513, U.  S.  Department of Health and
    Human Services, 1993, pp.  33, 50.

    \46 Kenkel, Don and D.  Ribar, "Alcohol Consumption and Young Adults'
    Socioeconomic Status," Brookings Papers on Economic Activity, 1,
    1994, p.  119; Mullahy, J.  and Jody Sindelar, "Alcoholism, Work, and
    Income," Journal of Labor Economics, 11(3), 1993, p.  494; Harwood,
    H.  J.  et al., "Economic Costs to Society of Alcohol, Drug Abuse and
    Mental Illness," Research Triangle Institute, 1984.

    HOW STATES EARMARKED ALCOHOLIC
    BEVERAGE EXCISE TAX REVENUES, AS
    OF FISCAL YEAR 1993
    ========================================================== Appendix IV

                                  (Dollars in millions)

                                                     Earmarked
                                ----------------------------------------------------
                         Total
                     collectio
    State                   ns      Amount           Percent      Purpose
    ---------------  ---------  ---------------  ---------------  ------------------
    Alabama             $122.4       $9.4              7.7        Mental health
                                     30.8             25.2        Human resources
                                     17.8             14.5        Education
                                      6.1              4.9        Counties and
                                                                   cities
    Arizona               40.9       15.2             37.2        Correction fund
    Arkansas               4.2        1.1             26.2        University of
                                                                   Arkansas Medical
                                                                   Center
    Colorado              23.2        1.0              4.5        Old-age pension
                                                                   fund
    Florida              539.2        8.8              1.6        Child and
                                                                   adolescent
                                                                   substance abuse
                                                                   services
                                     19.9              3.7        Alcoholic beverage
                                                                   and tobacco trust
                                                                   fund
    Idaho                 12.8        4.5             35.2        Counties and
                                                                   cities
                                      1.2              9.4        Alcohol programs
                                      1.2              9.4        K-12 education
                                      0.3              2.3        Community colleges
                                      0.7              5.5        Welfare
    Indiana               33.2       15.6             47.0        Prison
                                                                   construction,
                                                                   enforcement, and
                                                                   administration
                                      2.3              6.9        Local police
                                                                   pension
                                      2.8              8.4        Addiction services
                                      8.3             25.0        Cities and towns
    Kansas                57.7       12.2             21.2        County or city
                                                                   where sold
                                      1.5              2.6        Alcoholism
                                                                   treatment and
                                                                   prevention
    Michigan              74.5       21.9             29.4        School aid fund
                                     21.9             29.4        Convention
                                                                   promotion
                                      8.0             10.7        Liquor purchasing
                                                                   revolving fund
    Mississippi           38.1        3.1              8.1        Department of
                                                                   Mental Health
                                      1.0              2.6        Municipalities
    Montana               15.4        3.7             24.0        Alcohol treatment
                                                                   and
                                                                   rehabilitation
                                      2.6             16.9        Local government
    Nevada                14.6        2.0             13.7        Counties and
                                                                   cities
                                      0.6              4.1        Alcohol and drug
                                                                   abuse programs
    New Jersey            88.0       11.0             12.5        Alcohol education,
                                                                   rehabilitation,
                                                                   and enforcement
    New Mexico            17.6        9.1             52.0        Community
                                                                   alcoholism and
                                                                   detoxification
                                                                   fund
    North Carolina       156.1        2.1              1.3        County
                                                                   rehabilitation
                                                                   contribution
                                      3.4              2.2        Law enforcement
                                      2.9              1.9        Alcohol education
                                     27.1             17.4        County and city
                                                                   districts
                                     21.0             13.5        Local-state tax
                                                                   sharing
    Ohio                  83.5        0.3              0.4        State grape
                                                                   industries
                                      2.0              2.4        Alcohol treatment
                                                                   and prevention
                                     18.1             21.7        Debt service on
                                                                   state economic
                                                                   development bonds
    Oklahoma              23.6        6.8             29.0        Cities and towns
    Oregon                71.4       29.0             40.6        Counties and
                                                                   cities
                                      5.2              7.3        Alcoholism
                                                                   programs
                                      0.1              0.2        Wine industry
    South Dakota          21.0        5.3             25.2        Municipalities and
                                                                   local governments
    Tennessee             64.2        1.7              2.6        Highway fund
                                     18.8             29.3        Counties and
                                                                   cities
                                     11.2             17.4        Education
    Texas                392.5       24.9              6.3        Law enforcement
                                     29.8              7.6        Public education
                                                                   (K-12)
                                     51.2             13.0        Counties and
                                                                   cities
    Virginia              26.8       17.9             66.8        Local government
    Washington           154.4       10.0              6.5        Drug enforcement
                                                                   and education
                                     20.7             13.4        Counties and
                                                                   cities
                                      0.1              0.1        Washington Wine
                                                                   Commission
                                      0.1              0.1        Wine grape
                                                                   research
    West Virginia          4.4        4.4             100.0       Counties and
                                                                   municipalities'
                                                                   state police
                                                                   drunk driving
                                                                   prevention funds
    --------------------------------------------------------------------------------
    Source:  National Conference of State Legislatures, Earmarking State
    Taxes (April 1995).

    SELECTED PROVISIONS OF ALCOHOL
    CONTROL LAWS IN THE DISTRICT OF
    COLUMBIA, MARYLAND, AND VIRGINIA
    =========================================================== Appendix V

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

    Note:  Maryland and Virginia counties may enact local laws that
    supplement state laws affecting penalties, hours of operations, or
    other requirements.

    Source:  The statutes of the District of Columbia, Maryland, and
    Virginia.

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================== Appendix VI

    GENERAL GOVERNMENT DIVISION,
    WASHINGTON, D.C.

    James A.  Wozny, Assistant Director, Tax Policy and Administration
    Issues
    Charles C.  Tuck, Economist-in-Charge
    Anne Stevens, Senior Economist

    HEALTH, EDUCATION AND HUMAN
    SERVICES DIVISION, WASHINGTON,
    D.C.

    Helene Toiv, Assistant Director, Health Services Quality and Public
    Health Issues
    Ann M.  Calvaresi Barr, Project Manager
    Brenda R.  James, Evaluator-in-Charge

    OFFICE OF GENERAL COUNSEL

    Roger J.  Thomas, Senior Attorney
    Shirley A.  Jones, Senior Attorney
    Richard T.  Cambosos, Senior Attorney

    RELATED GAO PRODUCTS
    ============================================================ Chapter 0

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    Substance Abuse and Mental Health Services Administration
    (GAO/T-HEHS-97-135, May 22, 1997).

    Drug Control:  Reauthorization of the Office of National Drug Control
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    Drug Control:  Observations on Elements of the Federal Drug Control
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    Drug and Alcohol Abuse:  Billions Spent Annually for Treatment and
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    Cocaine Treatment:  Early Results From Various Approaches
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    At-Risk and Delinquent Youth:  Multiple Federal Programs Raise
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    Confronting the Drug Problem:  Debate Persists on Enforcement and
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    Indian Health Service:  Basic Services Mostly Available; Substance
    Abuse Problems Need Attention (GAO/HRD-93-48, Apr.  9, 1993).

    Drug Education:  Limited Progress in Program Evaluation
    (GAO/T-PEMD-93-2, Mar.  31, 1993).

    Community-Based Drug Prevention:  Comprehensive Evaluations of
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    *** End of document. ***