Alabama’s state owned and operated retail liquor stores serve the sole purpose of transforming the wealth of Alabama taxpayers (about 4 million or so) into pay, benefits, and rents for a small group of state employers (about 600) and lease holders (no more than 176). The ongoing clamor over the proposal to close those stores illustrates the Law of Concentrated Benefit and Distributed Cost.
In this case we have a large benefit paid to a few paid at a small cost to many. The small group benefits from a narrow public policy and fights hard to preserve the benefit. The broader group that pays for the benefit does not fight because they find it not worth the effort to oppose it. That’s one reason why special interest groups can be so powerful and successful in pushing harmful and unaffordable policy on state residents. The Alabama Education Association is another example of that principle in action.
Alabama has a mix of state and private liquor stores, about 176 and 550 respectively, with the state stores doing about 75 percent of the business. Taxes are the same on the booze sold in both types of stores and those taxes all go to the Alabama treasury. Private stores also pay other taxes such as real estate and income taxes. The private stores also must buy the booze they sell from the state, but that calculus is not considered here.
The state stores have annually distributed to the treasury excess revenue ranging from $303,000 to almost $13 million in the years 2008 through 2013. The net benefit of the state stores is small and variable. That benefit is also overstated because state accounting does not consider future payments that will have to be made to retired state employees because, like most states, the Alabama retirement system is underfunded.
The Alabama is considering SB 115, a bill that would close the state liquor stores and make the retail booze business completely private. The Legislative Fiscal Office has said that would increase state tax revenue by $16 million to $25 million per year beyond the status quo described above. In a state facing a large budget deficit and the prospect of large tax increases, getting ‘Bama out of the booze business makes lots of sense to most people. So why the clamor over such a sensible bill?
The clamor is explained by the Law of Concentrated Benefit and Distributed Cost. The small group getting benefits from working in or leasing stores is working hard to keep their benefits. That is as understandable as it is unaffordable — unless you want to pay more taxes.
Even though they provide no benefit and perform no essential services for the taxpayers, the rent seekers and employees have lots to lose. They and their lobbyists have gotten to four Republican senators on the committee working SB 115 and persuaded them to block the bill and keep their gravy train going. In stopping the bill in committee, those senators have now bought the goodwill and votes of the special interest with taxpayers’ money.
The special interests and their swineherds are not the only ones who can make noise, though. Now would be a good time for conservatives to speak up against cronyism and for limited government.
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Thomas Scovill is a retired army officer and Republican activist. He lives in Madison and may be contacted at firstname.lastname@example.org