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With New Jersey’s budget deficit moving beyond the $7 billion projected, Governor Corzine has proposed, and the Legislature is considering an increase in taxes on distilled spirit and wine by 25%. According to the State Treasurer, they are expecting to raise around $22 million with this tax increase.

But rather than “plug up a hole” in New Jersey’s dire economy, it is more likely that a tax increase on alcoholic beverages will result in further economic harm to consumers, retail sales, on premise consumption, and push unemployment even lower.

There is an old truism that says, “Those who forget the lessons of history, are doomed to repeat them.” Let’s take a look at what happened the last time New Jersey increased the excise tax on alcoholic beverages. It was in 1992 and the combined increase amounted to 57% increase, and resulted in a 4% decline in industry sales. The lesson here is that people react to higher prices. First, there will be the natural reaction by New Jerseyans to buy less of something that is more expensive. Distilled Spirits are expected to decline by over 300,000 gallons, and wine would drop by 175,000 gallons. These lost sales will total $50 million at retail, including lost sales at restaurants and bars.

New Jersey will also lose sales from reduced cross-border purchases. Currently, New Jersey has a competitive advantage over New York and Pennsylvania. This advantage allows New Jersey retailers to “export” an estimated 520,000 gallons of distilled spirits each year, worth about $36 million to retailers.

If New Jersey enacts this 25% increase in the excise tax, this “advantage” will be lost and out-of-state customers will simply stay home and retailers will lose approximately $60 million in sales.

Unfortunately, this proposed tax increase comes at a time when the bar and restaurant business is already down by 30%. This, coupled with the loss of sales from the “no-smoking” ban; the cost of New Jersey’s “family leave” act; and the new Fire Code regulations which are estimated to cost each business $30 to $50,000, will simply be devastating to the bar and tavern industry.

Please, not another tax!

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