A higher tax on liquor, but is the state a retailer?

GOV. Christine Gregoire's proposals to distill more money out of liquor sales are too cautious. The state needs to take the more radical and common-sense step of privatization. It should raise revenue through its power to tax rather than trying to operate as a retailer.

The state now proposes to open five new state liquor stores and five new contract liquor stores, and allow all stores to sell such things as bottle openers and ice. The extra profit to the state is estimated to be $21.5 million over the next two years.

Compared with the likely $8 billion hole that will need to be filled over that time, the extra liquor profit is one-quarter of 1 percent.

Liquor can do better than that.

On a dollar of revenue from hard liquor, 25 cents is paid to distillers and carriers, 17 cents pays for the expenses of the state liquor stores, 16 cents goes to the federal government and 42 cents is profit.

With such a high-proof profit margin, it might seem that state government is one savvy retailer, except that everyone knows it is not. It spends too much on labor. Its stores are in the wrong places and do almost nothing to attract business. The state's profit margin is high only because it reserves the business to itself.

In all likelihood, the private sector could do the job much more cheaply. At the same price per bottle, the state could have even more money through its power to tax.

There is a historical parallel to privatization: the end of liquor prohibition in 1933. Much of the reason to legalize liquor was so that government could tax it during the Depression. But it decided to get into the liquor business — a decision most other states either did not make or have since rescinded. They realize, which Washington should also, that it is more efficient to tax liquor directly.

There is also the issue of the message the state sends by being in the liquor business. As one of our public bloggers pointed out earlier this week: "It's so hypocritical of the state to put all the warnings on about how bad [liquor] is for me, but then demand that I only purchase it from them."