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Alcohol Prohibition: 100 Years Later

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In five days – on January 16th, 2020 – we Americans can, and should, bemoan the 100th anniversary of the implementation of the nationwide prohibition of alcohol. University of Michigan law professor Adam Pritchard and I wrote an op-ed to mark the centenary of this lamentable historical episode [2]. A slice:

Something else happened in 1930 that suddenly changed the dynamic: the Great Depression, and specifically its effect on federal revenues.

Alcohol prohibition was very closely linked to the federal income tax. Before the first national income tax in 1913, liquor taxes accounted for about one-third of annual federal revenue. Income taxes went from supplying about 16% of the federal government’s revenues in 1916 (the year before American entry into World War I) to supplying double that proportion in 1917. By 1918, the income tax supplied nearly two-thirds of federal revenue, and by 1920 it produced nine times more revenue than liquor taxes and customs duties put together.

So while Congress did eventually acquiesce to a popular social movement, it did so only after its coffers were being filled by another reliable source of revenue.

Then, for more than a decade, Congress gave no hint that it would undo mandatory virtue. Prohibition, however imperfectly enforced, was on solid ground as a legal matter until things changed dramatically again in the 1930s. The Depression hit and income-tax revenues fell by 60% between 1930 and 1933.

Naturally, Washington was desperate for a solution, and its power brokers knew where to find one: at the bottom of the (legally purchased and taxed) bottle. One anti-Prohibition congressional leader acknowledged that if his faction “had not had the opportunity of using that argument, that repeal meant needed revenue for our government, we would not have had repeal for at least 10 years.”