9. The Role of Taxes in the Fight for and Against Prohibition
One of the best arguments deployed by brewers and distillers against prohibition was the importance of their taxes. Alcohol manufacturers’ taxes amounted at times to 40% of the US Government’s budget. 71% of the federal government’s internal revenue in 1910, and 30% of its overall revenue, came from alcohol taxes. As prohibition’s tide continued to rise, alcohol manufacturers found themselves in the incongruous position of being an industry that welcomed – and sometimes even invited – the government to tax it more. The more dependent Uncle Sam was on taxes collected from alcohol manufacturers, the less likely it was to enact prohibition and kill off an industry whose taxes were so vital.
The bottom fell out that argument when the Sixteenth Amendment was ratified in 1913. It allowed the US government to directly tax individuals based on income, instead of apportioning taxes among the states based on population. The new revenue stream from personal income taxes suddenly meant that the excise taxes on alcohol were no longer necessary to the fiscal survival of the US Government. It was a game-changer: the Prohibition amendment was approved by Congress four years later, in late 1917, and ratified by the states in early 1919.
