02 April 2009

New Capital Improvement Board Bailout Plan

A new bill introduced last night by Indiana State Senator Luke Kenley hopes to plug a huge gap in the budget for the Capital Improvement Board (CIB). The CIB is a government entity charged with operating several local sports venues and they're facing a projected revenue shortfall of $47M in 2010. This is largely based on unfunded increases in the operational cost of Lucas Oil Stadium versus the RCA Dome, though the Indiana Pacers are also requesting concessions to help with its annual losses related to the upkeep of Conseco Fieldhouse.

Among several other tax increases, Kenley proposes to double the Indiana tax rate on beer from 11.5¢ to 23¢ per gallon. In addition, the Marion County restaurant tax rate would jump from 2% to 2.25%, taking a little more out of your pocket every time you order a pint at your local pub.

Let's put these numbers in perspective: what do these increased taxes mean for a real beer purchase?

A gallon of beer is 128oz, or 10 and 2/3rds standard 12oz beers. An increase of 11.5¢ on that many beers is just 1.08¢ per beer. So, when you check out at your local beer store, a six pack will cost you about 6.5¢ more and a 24 can case of beer will set you back about $0.26 extra.

How about eating out at your favorite restaurant in downtown? If we assume an average pint of craft beer costs about $4.50 in Indy, a 0.25% increase in restaurant tax will set you back about 1.13¢. But remember that we'll also have to pay the above increased tax rate on beer, about 1.44¢ on 16oz of beer, for a total of 2.57¢ per pint.

One question will be, "who's going to absorb this tax increase?" Will restaurants take the small hit and pay for the tax increase without changing prices? Or will they pass on the pennies tax increase, and possibly move to even higher pint prices?

Here are a couple other thoughts I've had while considering these tax increases:
  1. It's worth noting that state alcohol taxes have not gone up since 1981 and they're not indexed to inflation. According to one online calculator, the inflation rate since 1981 is such that things cost about 2.33 times more today. Therefore, doubling the alcohol tax still doesn't even equal the relative tax that Hoosiers were paying in 1981.

  2. Since the beer tax is only related to the volume of beer being bought, those that choose to buy cheap beer are actually paying relatively more in taxes. Remembering that the new tax rate will be 23¢/gallon (2.16¢ per 12oz), consider someone that buys a 6 pack of Oberon for $10. They're going to pay 6 x 2.16¢ = 13¢ in total beer tax. 13¢ on $10 is 1.3% tax.

    Say someone else purchases a 24 pack of Miller Lite for $15. They're going to pay 24 x 2.16¢ = 52¢ in total beer tax. 52¢ on $15 is 3.5% tax. The lower the beer price by volume, the higher the percentage tax rate.
So what do you think? Does a penny here or there not matter much to you? Or are you mad as hell about being taxed more for beer to pay for the operations of a stadium you may or may not use and a moribund NBA franchise you may or may not care about? See Matt's post from a couple days ago with information to contact your local legislator and let them know your opinion.

6 comments:

  1. It is more about the principle of spending and budgeting than it is about how much additional money they take from my pocket. Sure it is a few cents this year, but the government is notorious about the slow and steady bumps in spending and taxation. Once they find they can do it once, they WILL do it again. And again. And again.

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  2. It's definitely an irritation that taxpayers who are already shouldering a large part of the load to have an NBA and NFL team here are being tapped for even more money. The Colts got a new stadium and hardly had to add anything to pay for the cost. Fair would be charging the tax at the venues in my opinion.

    As to the question about who pays the tax at the local watering hole? I can see some places using this as an opportunity to up the price of a pint or bottle by $0.25. Let's face it.. I don't know any place that charges a beer price that isn't divisible by 25 cents. In the grand scheme of things.. this isn't going to break anyone, but it feels like one more hook into an ever decreasing paycheck. :-(

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  3. Maybe they can get their tax money by repealing the laws regarding Sunday alcohol sales. I think there may be some sort of petition out there regarding this? (haha)

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  4. Who pays an excise tax (the consumer or the business) depends on the consumer's price elasticity of demand (which is a measure of their responsiveness to the tax). If consumers buy the same amount of beer, regardless of the tax, then in theory they would pay the whole tax. If the consumers are very responsive to the tax then the business would pay more of the tax. Here is the first website i found on the topic:
    http://www.sjsu.edu/faculty/watkins/taximpact.htm

    My guess is that consumers won't be very responsive to the tax. so in theory- the tax would be almost completely paid by the consumers. In reality though, there are probably menu costs to changing the price in a restaurant but it is less costly to change prices in a store. So I'm guessing the restaurants will take the hit on the taxes, at least in the short run and consumers will take the hit when buying from a store.

    just my two cents.

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  5. I too am more concerned about the reasoning behind the CIB gap funding than the tax itself. Clearly, assuming Chris's facts are accurate, a slight tax increase on alcohol isn't going to make or break the consumers. No one wants more taxes really. You can tell they are really scraping the bottom of the barrel to come up with some extra money for the CIB's lack of foresight. Why don't they suck it up and go straight to the folks to make profit off the venues and ask for money? Why take it from those who effectively have little benefit directly from the cash profit of the facility?

    (insert vague and incalculable argument here for how much "profit" [cash and / or economic] the venues make for the city over time)

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  6. Thanks for weighing in, CAPS USER.

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