Last month, I described an unfortunate court ruling that let stand a Texas law designed to protect that state’s in‐state liquor retailers from out‐of‐state competition, a holding that disregarded recent high‐court precedent. This built on a podcast I had recorded about a year ago about the relationship between state alcohol regulation under the Twenty‐First Amendment (which ended Prohibition) and the Commerce Clause.
As the Wall Street Journal describes today:
The federal government and states have been in a tug‐of‐war over alcohol regulation since the 21st Amendment passed in 1933. That amendment gave states the right to decide whether to go wet or stay dry. But the Supreme Court in 2005 came down decisively in favor of the feds in Granholm v. Heald. The Court struck down laws in New York and Michigan allowing in‐state wineries to ship directly to consumers while forbidding out‐of‐state wineries from doing the same. The Court ruled that while the 21st amendment gives states the authority to regulate alcohol within their borders, the Constitution’s Commerce Clause bars them from erecting such protectionist barriers.
Still, many states have tried to circumvent Granholm, and the Texas law I previously wrote about is one example. Just like countries erect trade barriers to “help” domestic industries — at the expense of consumers and the economy as a whole — states engage in similar tactices. While the World Trade Organization doesn’t have any authority to police such internal matters, the U.S. Constitution sets out a perfectly good institution for dealing with these blatant Commerce Clause violations: the federal judiciary. And indeed, with some exceptions, courts since Granholm have “corked” protectionist state legislation.
But because Congress can’t leave well enough alone, and at the behest of liquor wholesalers (whose no‐value‐added middleman profits are obviously threatened by eliminating interstate trade barriers), we now have pending federal legislation called the Community Alcohol Regulatory Effectiveness (CARE) Act. This cutely titled bill purports to give more local control over alcohol regulation — to protect Baptists and bootleggers community values, children’s health, etc. — its actual purpose is to prevent out‐of‐state producers from selling directly to consumers around the country.
The CARE Act would eliminate the ability for alcohol producers and related businesses to challenge Commerce Clause violations in federal court. That’s not a good thing, as we’ve noticed in every other industry, such as insurance, where Congress has abdicated its constitutional authority to maintain the channels of interstate commerce clear of state interference. As the Journal again puts it:
You can bet your favorite case of California cabernet that Care will reduce choices and raise prices for consumers, just as McCarran‐Ferguson has done in the insurance market. From what we’ve gathered through the grape vine, the main groups backing this bill are alcohol wholesalers. They serve as the middlemen in over 90% of transactions between wineries and retailers, and they account for up to 25% of the price of every bottle of wine. Wholesalers have convinced 57 Members of Congress, including 28 Republicans, to co‐sponsor Care. Last year 153 Members, including 94 Democrats and 59 Republicans, co‐sponsored a similar bill.
The trick here is that the wholesalers lobby is trying to play the “state sovereignty” clause, explaining that they’re just federalists trying to fight a one‐size‐fits‐all national regulatory Leviathan. A clever maneuver in the Tea Party era, to be sure, but one that forgets that one of the main purposes of the Constitution — the very reason James Madison called the Constitutional Convention — was to eliminate interstate barriers to commerce; how else could the fledgling republic’s economy grow?
Congress would never give states the power to stop Apple or J. Crew or any other retailer from shipping its products directly to consumers. It should be no different with alcohol.