Liquor Tax Increase To Fund Health Equity Program Debated

OCEAN CITY — While few would argue with addressing health disparities in Maryland, funding a proposed program on the back of an already-struggling hospitality industry has been called into question.

There is little doubt there are glaring health disparities in certain communities around Maryland. Sometimes, the inequalities in access to healthcare or quality of care are drawn along racial lines and in other cases, they are drawn along geographic lines. The ongoing COVID-19 pandemic has only shone a brighter light on the healthcare divide in some communities.

Some state lawmakers met with healthcare advocates and community leaders this week to advance legislation aimed at addressing health disparities with programs funded by a 1% increase in the state’s alcohol tax.

The legislation, if approved, would create Health Equity Resource Communities (HERC). Communities in the program would be eligible for grants, tax incentives and even healthcare provider loan assistance. However, a coalition of hospitality organizations including the Maryland State Licensed Beverage Association, the Maryland Beer Wholesalers Association and the Maryland Distillers Guild, among others, are already crying foul about the proposal to hike the tax on alcohol and its potential impacts on an already-struggling restaurant and bar industry. The coalition released a statement on Wednesday pointing out the apparent shortsightedness of further taxing an industry that already faces the highest tax burden in the state.

“First, alcohol is already taxed twice in Maryland,” the statement reads. “There is an excise tax on alcohol which is paid when products arrive in the state. There is also a 9% sales tax applied at the point of sale. This rate is already 50% higher than the 6% rate applied to every other item subject to the sales tax in Maryland. In effect, this tax increase takes one of the highest taxed items in Maryland and taxes it even more.”

The coalition’s statement opines there is likely no good time to consider raising the alcohol tax, but especially not during an economic crisis when many restaurants and bars are barely hanging on. Ultimately, the potential tax increase will end up on the checks of consumers and studies have shown a drop off in business when prices go up.

“Second, raising taxes that disproportionately affect the restaurant and bar industries could not come at a worse time,” the statement reads. “Restaurants and bars were shut down for dining in response to the COVID-19 pandemic. Partial re-openings, outdoor dining and carryout orders have helped some of them remain viable, but the revenue produced from these sales pale in comparison to pre-pandemic levels.”

The coalition’s statement points out many restaurants and bars have closed already and more will likely shutter because of lingering COVID impacts and raising taxes on them could only accelerate that.

“The Restaurant Association of Maryland predicts up to 40% of Maryland restaurants may close permanently because of the pandemic and uncertainty about when business will return to normal as it has become increasingly difficult for restaurants to generate the customer volume and revenue they need to remain open,” the statement reads. “In addition, unemployment in the hospitality industry is well-documented and has outpaced every other industry in Maryland. As these businesses struggle to regain their footing, which will take years, raising taxes will likely result in reduced sales in Maryland and essentially kicks a struggling industry while it is down.”

Again, few would argue with an attempt to address the growing health disparities.

“The COVID pandemic has made it even more clear that certain communities, especially communities of color, do no have the health care resources they need, which leads to disturbing health disparities,” he said State Senator Antonio Hayes (D-Baltimore), who sponsored the legislation.

However, passing the legislation will not likely happen without a battle. State Delegate Nic Kipke (R-Anne Arundel) said balancing the HERC budget with an increase in the alcohol tax could signal the death knell for many small businesses in Maryland.

“Maryland is in the middle of an economic crisis,” he said. “Our small businesses are hurting, particularly our restaurants, bars and mom-and-pop shops. Many of these businesses are hanging on by a thread, making enough to cover bills if they’re lucky. This type of tax increase could be the final straw that puts many out of business.”

Kipke said the last time the alcohol tax was increased in 2011, the hike was advertised as a way to increase funding for programs for the developmentally disabled, but by the time the deal was passed, only a fraction of what was promised actually made it to the developmentally disabled. He cautioned a similar situation could evolve with the proposed alcohol tax increase.

“Eliminating health disparities is an important goal, particularly given the impacts the COVID-19 pandemic has had on minority communities,” he said. “But, there is no guarantee that this is where the money will go. As Maryland faces a gloomy budget outlook, the probability that the General Assembly would swap these dollars to pay for something else is high. There is plenty of precedent.”

Closer to home, Ocean City Hotel-Motel-Restaurant Association Executive Director Susan Jones said on Thursday an effort has been made to roll back the alcohol tax to the level it was in 2011, the last time the tax was raised in Maryland, and not to increase it further.

“We suggested to Comptroller Franchot that the alcohol tax revert back to the 6% it once was as a relief measure,” she said. “He noted that the state has a great bond rating and that there was $500 million in a rainy-day fund untouched, so the state was in healthy financial shape.”

Jones said the state’s hospitality industry has been singled out before and hiking the alcohol tax in the middle of an economic and health crisis was shortsighted.

“Our industry has bee unfairly targeted on more than one occasion,” she said. “The effects of COVID-related closures and reduced capacities are going to be the collapse of many restaurants, as already evidenced by closures around the state. Interestingly, the governor has said multiple times that family gatherings are twice as high as restaurants when it comes to contact tracing. We will join the liquor industry and other hospitality groups in fighting this for sure.”

About The Author: Shawn Soper

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Shawn Soper has been with The Dispatch since 2000. He began as a staff writer covering various local government beats and general stories. His current positions include managing editor and sports editor. Growing up in Baltimore before moving to Ocean City full time three decades ago, Soper graduated from Loch Raven High School in 1981 and from Towson University in 1985 with degrees in mass communications with a journalism concentration and history.