Tuesday, March 22, 2016

FDR | Mar. 22–Beer and Wine Legalized & TAXED

Driver Sen. Simeon Fess (R-Ohio), was Chairman of
the Republican National Committee, 1930-32.
Defeated for reelection in 1934, he died in 1936.
FDR this day signed the Beer and Wine Revenue Act, which made sales of beer and wine legal under federal law, but imposed a tax on such sales.

This was an important shift, from prohibition of alcohol to taxation of it. The tax was called America's first "sin tax" but tax policy experts today refer to a tax on luxury goods that many disapprove of as "Pigou" taxes.

Named after Cambridge University economist Arthur Cecil Pigou (1877-1959), a Pigou tax is intended to reduce the amount people consume of the good. At the same time, if the tax is enforced, it raises revenue for government programs.

This was a win-win for FDR.

He raised money for his New Deal programs to generate jobs at a time when the unemployment rate was 25 percent, at the same time as he could tell temperance supporters that he was discouraging beer and wine sales by making them more expensive. For beer fans he was a hero because he made beer and wine legal (up to 3.2 percent alcohol), undercutting the illegal establishments that sprang up under Prohibition (as many as 100,000 "speak-easies" operated in New York City alone). Collecting taxes on alcohol was much less costly than trying to track down illegal sales during the Prohibition era, so FDR saved his Treasury Secretary, Will Woodin, some money in this area.

Temperance advocates had long sought prohibition of sale of alcohol and they succeeded in 1919 with passage of the 18th Amendment and its accompanying Volstead Act. One argument against women getting the vote had been that more women would mean more votes for Prohibition. One reason that the 19th Amendment, recognizing women's right to vote throughout the United States, was passed in 1920 was that the fear of Prohibition became a reality without universal woman's suffrage.

Prohibition forbade manufacture, sale or transporting of liquor, i.e., any beverage with more than 0.5 percent alcohol by volume. Prohibition was found not to cut down on consumption while depriving government of tax revenue and imposing heavy enforcement costs. Prohibition was repealed in December 1933 by passage of the 21st Amendment.