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 these 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 while the broader group which pays for the benefit does not fight because they find it not worth the effort to oppose it. This is one reason why special interest groups can be so powerful and why they can be successful in pushing policy that is harmful and unaffordable to the citizens of the state. The Alabama Education Association is another example of this 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, e.g., real estate and income taxes. And the private stores must buy the booze they sell from the state, but that calculus is not considered here.
The state stores have also annually distributed to the treasury excess revenue ranging from $303 thousand to almost $13 million in the years 2008 through 2013. The net benefit of the state stores is small and variable. And 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 SB115, a bill which would close the state liquor stores and make the retail booze business completely private. The Legislative Fiscal Office has opined that this would increase state tax revenue by $16 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 serve 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 (pictured below) on the committee working SB115 and convinced 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 taxpayer money.
But the special interests and their swineherds are not the only ones who can make noise. Now would be a good time for conservatives to speak up against cronyism and for limited government.