Kudos to CalTax for picking up on the Board’s reluctance to give up extra resources with regard to the new Flavored Malt Beverage regulation (link).
When we adopted the regulation last year, over my objections, the Board told the Department of Finance to expect $38 million in revenue for the fiscal year. As I warned repeatedly, it turns out the regulation is unenforceable and easily dodged.
The companies this regulation sought to punish simply changed the formula in their products so they no longer contain distilled alcohol. As a result, year-to-date, the state has collected only $6,000 of revenue. (Yes, that means our expert revenue estimates were off by 6,333%) To gear up to collect this tax we asked the Department of Finance for more money. Finance now understands how ridiculous this tax is and they want the BoE to completely withdraw the request. I agree with Finance. With a hemorrhaging state budget this should be a very simple decision to save the state money.
The BoE is asking for $1,328,000 (General Fund) in Fiscal Year 2009-10. Now that we are seeing almost no revenue, and the manufacturers have reformulated their products, this request makes no sense at all.
The majority of my colleagues on the Board voted not to rescind this request but to modify it so more testing of these products can take place. I have argued repeatedly there is no way to test whether an alcohol molecule came from beer or distilled spirits. To my knowledge, no such test exists. My colleague, Doctor Judy Chu (D-Los Angeles) says that without a way to test these products, there will be complete chaos. That is exactly what I have been saying from the beginning. This regulation does nothing but create an expensive and chaotic situation. It has also utterly failed to have any impact on teen drinking, which is supposedly what drives the issue. The majority Democrats have insisted since the start this would make teen drinking go down, even though there is no evidence it would do any such thing. Just from a common sense standpoint, if there were products that fit this regulation, by raising taxes on these hard liquor becomes cheaper in comparison.
This is dubious social policy, bad tax policy, and a waste of money and time. This is not sound leadership and I hope people notice. I call on Finance to strip the BoE of every cent in this request.
Below is an edited video of our discussion at the February 3rd BoE meeting:
I have written on this topic before here and here (scroll down).