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I live in Virginia, where every spirit is bought at wholesale and sold to the public by Virginia ABC (Department of Alcoholic Beverage Control). Virginia ABC turns over roughly $200 million to the state each year.

I’ve found that my favorite spirit, the superpremium Van Winkle Special Reserve Bourbon 12 Yr, sells for $38.95 in all VA ABC stores, which I believe includes the 20% sales tax on spirits. Virginia already has far higher taxes on spirits than most other states, including Kentucky. At any rate, the final price is lower (by at least $5) in Virginia than Kentucky.

Why do I end up paying less for a 750ml of Van Winkle in Virginia than I ever remember paying in Kentucky?

A few possible reasons:

1) Virginia’s ABC has significant monopsony power when buying spirits. By virtue of the fact that ABC can prevent certain spirits from being retailed in Virginia at all, producers sell their goodness at a lower price to the state than they would to a bevy of distributors. Virginia has good reason to “negotiate” lower prices. It allows them to charge their 20% alcohol sales tax without the customer being much the wiser.

2) Virginia’s ABC has significant monopsony power in the location of liquor stores. Perhaps having a Virginia ABC store in your strip mall is an amenity that creates large shopping externalities, large enough perhaps for you to offer cheaper rent. Is ABC is able to get a better deal on rent than independent, licensed stores?

3) No retail distributors means no distributor cut. Cutting out the middleman means distributor rents instead accrue to customers and state government’s coffers.

My memory may be fuzzy, but I recall that a 750 of Maker’s Mark or Buffalo Trace went for $20 in Kentucky (at least at CVS), which is lower than the price I’ve found in Virginia.

Now, I’ll admit, my data are weak (I haven’t compared price lists from Virginia ABC stores and Kentucky CVS drugstores) and my memory is likely fuzzy. Yes, I do plan to investigate further. But what the heck is going on?

Tax avoidance is the catch-all phrase economists use to denote activities you would not otherwise engage in, other than in an attempt to avoid paying some sort of tax, or to lower your overall tax liability. Maybe you don’t work as much as you could to avoid being bumped up into that next income tax bracket, or put in that questionably necessary home office.

Well to the surprise of no one, tax-happy France has even placed excises on it’s signature product. The city of Paris has a tax on wine served in restaurants… but it’s levied by the piece of stemware or glassware used.

National Geographic’s Intelligent Travel blog has the story about a trip to the restaurant in question. I’ll let you read the whole thing for a better idea of how they avoid this tax, but here’s a hint:

The Heritage Foundation has an ugly chart on how quickly federal spending increased versus revenues for the last several presidential administrations. Notice anything?

I believe they’re doing it again. The General Assembly is violating the state constitution before our very own eyes and they’re doing it by passing an unconstitutional budget. Not surprisingly, 84 members of Kentucky’s House voted for it. Here’s the key phrase, which actually describes the budget:

AN ACT relating to appropriations and revenue measures

You might be surprised to learn that the state constitution actually prohibits the comingling of appropriation measures and revenue measures. Here’s a key phrase that every lawmaker swears to support when he or she is sworn in:

All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose amendments thereto: Provided, No new matter shall be introduced, under color of amendment, which does not relate to raising revenue.

Emphasis mine. In layman’s terms, it means that bills to raise revenue can’t do anything else. They have to raise revenue only. That means, in translation, that a bill that spends state money may not also raise money, since a bill to raise money can’t also spend money. But the state constitution goes further:

No law enacted by the General Assembly shall relate to more than one subject, and that shall be expressed in the title, and no law shall be revised, amended, or the provisions thereof extended or conferred by reference to its title only, but so much thereof as is revised, amended, extended or conferred, shall be reenacted and published at length.

What does that mean? It actually, in part, restates the restriction I quoted earlier. Bills may not relate to more than one subject. Revenue is a subject. Appropriation is a subject. They may not comingle.

And yet, the state constitution makes this idea even more clear, but I won’t quote the whole section:

… The Governor shall have the power to disapprove any part or parts of appropriation bills embracing distinct items, and the part or parts disapproved shall not become a law unless reconsidered and passed, as in case of a bill.

Emphasis mine. Kentucky’s governor, like many governors, has the right to veto distinct portions of appropriation bills. This bill, as stated by the general assembly, relates to raising revenue. So it’s either unconstitutional or the title of the bill is wrong.

You’d think Harry Moberly would have been more careful in crafting this budget.

I wrote on this subject for the Bluegrass Institute a few years ago.

After several years of overspending in Frankfort, Kentucky House Budget Chairman Harry Moberly wants to solve the problem by raising $400 million from you:

Rep. Harry Moberly said the severity of the proposed cuts has driven him to try to find more revenue than the roughly $200million a year he spoke of early this month.

“I’m looking at proposals that would be anywhere from $240million to $400million each year,” he said in an interview.

The state faces a gap of about $900million between current spending and anticipated revenue for the next two-year budget period, which begins July 1.

Moberly, D-Richmond, said the main element of his package remains a 25- to 30-cent increase in the state’s 30-cent-per-pack cigarette tax. That is projected to raise roughly $125million a year.

He said again that he’s also considering an increase in the corporate income tax rate, which was cut in 2005, and hopes to realize savings by refinancing some state bonds.

I think Dave Ramsey might have a few things to say about reshuffling the state’s debt to realize those savings.

Government spending in Kentucky has skyrocketed over the past several budget sessions. Has anyone considered selling some state assets to balance the books? How many golf courses does Kentucky’s government own?

David Adams of the Bluegrass Institute seems to have something against tax cuts.

The bill in question is described by Adams on KentuckyVotes.org in that it will:

create a state refundable Earned Income Tax Credit for low-income individual taxpayers who take the federal EITC and a state non-refundable work opportunity tax credit for employers who take the federal WOTC.

In fact, the federal EITC is the most successful tax credit ever instituted. It is just that, a tax credit for individuals who hold down steady jobs and earn their own income as opposed to taking government benefits. It is the closest policy we have to Milton Friedman’s “negative income tax” idea, and owes its origination to Friedman’s ideas as was reported in the reliably conservative Wall Street Journal.

The EITC has done more than any other single policy to raise people out of poverty. It is the most efficient tax policy we have. Is it a transfer payment? Yes. But it does so exactly like a system of mass transit that enables poor people to get to work. To get the benefit, you have to work.

Luckily in the same post, Mr. Adams once again repeated his support for creating a bureaucracy to administer drug testing to recipients of government benefits, which gets aired more often than reruns of M*A*S*H. If the idea is to get people off welfare, an EITC is far more effective than drug testing.

An expansion of a tax on businesses not earning profits could get a vote in the Kentucky House today.

The Corbin Times-Tribune finds some interesting info about a tourism tax in Whitley County that may be illegal:

 Since 1999, Whitley County has allocated its transient room tax revenues to the Williamsburg-Whitley County Airport — but an informal opinion from the state attorney general’s office states the tax is improperly instituted because the county has no tourism commission.

According to the county ordinance established Feb. 11, 1999, a commission was not formed because “the transient room tax revenues are not large enough to justify retaining any portion of the revenues for administration by a tourism and convention commission.”

However, a tourism commission does not require paid board members or a salaried director to operate.

In the ordinance, the county assigned all transient room tax revenues, past and future, to the Williamsburg-Whitley County Airport Board Inc. “for the purpose of financing the cost of acquisition, construction, operation and maintenance of an airport in Whitley County.”

The 4-percent transient room tax is paid by the usage of hotel rooms in the county. Cumberland Falls State Resort Park accounts for nearly all of the county’s transient room tax revenues. According to park records, Cumberland Falls paid the county $50,995.15 in transient room taxes in the calendar year 2007. The only other contributing entity in the county is Sheltowee Trace Outfitters, which offers rafting and canoe experiences and has several on-site cabins. Other hotels located within Whitley County are in Williamsburg and Corbin city limits, and their tax revenues are given to each city’s tourism commission.

County officials contend there was nothing wrong with how they used the revenue from the tax. They gave the money to the Williamsburg-Whitley County Airport Board, an entity that is not associated with tourism. However, the Whitley County airport manager thinks the airport could be a fine tourism attraction:

“We get quite a few people who come into the airport for tourism,” he said. “I couldn’t give you a solid number on that. We’re not tracking that, but it does play a part in tourism.”

 The airport board’s president basically sums up how having an airport in Whitley county is not feasible:

“I think we need the airport for the area to help it grow and develop,” said airport board president Bob Moses. “It’s been a hard sell for the local people because they felt the money could be used for something else, something more profitable. The airport will probably never make money for the county, but neither does the interstate.”

Thousands of cars use the interstate every day, but how many planes take off from the Whitley County airport each day? This is another example of another government pork project propped up by tax dollars, illegally.