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More Expensive Cheap Wines

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Posted: Wednesday, January 28, 2009 12:00 am

I was hoping the State of California’s proposed “nickel-a-drink” tax increase on alcohol would go away, but with a looming budget gap of $41.6 billion, the tax could go into effect as early as this coming week.

Industry players Anheuser-Busch, MillerCoors, Wine Institute, and others have started SinktheDrinkTax.com to “tell Governor Schwarzeneggar and your legislators that a 640% tax increase is simply too hard to swallow.”

They claim wine drinkers will see a 10% price increase per bottle. Industry analysts estimate that Bronco’s “Two Buck Chuck” will become “$2.29- to $2.49-Chuck.”

I would argue that wineries producing wines over $20 per bottle will likely absorb the excise tax increase, rather than boost bottle prices by less than 50 cents.

Therefore, SinktheDrinkTax’s claim that this tax will affect lower-income households more than wealthier households is probably true.

Consider how the tax relates to other costs of winemaking: the bulk of Lodi grapes have been selling for under $500 per ton. This increase of about $1.30 per gallon amounts to over $200 more per ton.

Looking at the cost in this way, it becomes pretty apparent that Lodi will be affected more than Napa, for example, where most grapes are sold for well over $1,000 per ton.

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