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Monday, March 16, 2009

Beer Tax Propaganda

An observation: when you see an op-ed title that purports to record-straightening, expect further twisting. Today the Oregonian has a piece by Judy Cushing, CEO of Oregon Partnership, with this title: "The sober truth on Oregon's beer tax." I have no reason to doubt that Oregon Partnership, devoted to fighting drug and alcohol abuse, is a great organization. But Cushing's editorial shades the "truth."
" Oregon's beer tax is less than a penny per 12-ounce container, effectively the nation's lowest beer tax. Those states with a slightly lower beer tax than Oregon have a sales tax that puts their total tax higher than ours. The industry has grabbed headlines with its cries of a 1,900 percent increase. The fact is, any increase looks large when multiplied against almost nothing."
This sales tax argument has been a common one lately. Having already harped on the point, I'll skip the comments on the per-glass cost and move to this new meme--that the lack of an Oregon sales tax makes the beer tax effectively the lowest in the country. This compounds the dishonesty of the per-glass argument, making it appear all the more like a retail tax. It's not--it's an excise tax. Oregon's beer tax is low--everyone will stipulate that--so why cook the data and try to make it the lowest? Not so truthful. I also ding Cushing on shading the reality of the cost. If she is going to complain that the 1900% increase is possible only because we already have a low tax, I'll point out that the percentage increase aside, this tax would make Oregon's beer tax fifty percent more than the next highest state's.
"There is no evidence a beer tax increase would cause job losses or financial ruin for our thriving Oregon brewers. And, in fact, the vast majority of the $320 million that would be raised would come from the major out-of-state beer companies."
Of course there's no evidence--no state has ever attempted to raise taxes even close to this much. That Bud would pay more than Ninkasi is hardly relevant; the huge increase on Oregon breweries might not amount to much of the $320 million, but it could easily be enough to bankrupt the smaller breweries. This is an experiment Cushing is happy to run, but how much does an anti-alcohol CEO care about bankrupting breweries?

On this point, I'd love to hear some real data. I'm ignorant, but it's clearly not a "demonstrable" function of economics based on the anecdote Cushing cites:
"Beer producers say a considerable increase would translate into an additional $2 per pint. That's demonstrably false. A week ago we purchased a six-pack of Widmer brew in Vancouver, Wash. -- where the beer tax is three times that of Oregon's and where the combined local and state sales tax is 8.2 percent. We discovered that a six-pack of Widmer was cheaper -- at $8.69 at a Vancouver Fred Meyer store -- compared with the $9.49 we paid at a Portland Fred Meyer. Who's pocketing the change?"
I share Cushing's interest in drug and alcohol treatment. Obviously, there are many ways to fund these programs, and they're not all created equally. The beer tax, as it's currently written, is a horrible solution. She calls into question the motivation of those who oppose the tax (a "long-standing, cozy relationship many legislators have with industry lobbyists"), but aren't her own motivations conflicted? She says that Oregon breweries won't be harmed, but her professional goal is to reduce drinking. I have no idea how the funding stream would work if this were passed, but I'd also be comforted to know that Oregon Partnership wouldn't receive any of the funds. Otherwise, her argument becomes all the more suspicious.

(I'm often dinged for not offering counter-proposals, so here's one: let's change Oregon law to incarcerate fewer people and spend the money on drug and alcohol treatment. It's better at addressing low-level crime and addresses the root problem. It's a public policy interest we all share, and it should be paid for out of the general fund.)


  1. I have never seen a sixer of Widmer for over $9.

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  3. I have read your original post and now your retort to Judy Cushing's guest slot in today's Oregonian. What seems clear is that all sides of this debate want things to be as cloudy as a good hefeweizen. The anti-tax side wants to conflate the effects of the tax in a sky-is-falling shriek.

    The pro-tax side wishes to confuse the debate with phony per-glass costs and wrap the benefits in service to the addicted drinkers. Neither approach will do, unless you are one partisan or the other.

    Anti-tax advocates should reveal their mathematical formulae for reaching $6.00/pint if they expect us to believe their numbers. Pro-tax denizens should spell out just what benefits will accrue from this tax, not all efforts to mitigate alcohol problems.

    Here's a third point of view. It may not be original, but it is one way to address the issue of taxation of beer in this state. Brewers have done themselves and their customers a big disservice by resisting anything and everything that has tax associated with it. What should have been happening over the years since craft brewing became a serious business is small, incremental changes to the tax codes that would bring Oregon along in a measured and sustainable way.

    Oregon has a lousy tax structure to begin with and it shows every time the economy goes south. It means that the brewing industry in general, but craft brewing in particular, tends to sound shrill when the headlines describe school closures and funding cuts everywhere in the budget. Brewers and beer consumers should not be called upon to prop up the sagging receipts in Salem, but they should not imagine that they have no responsibility, either.

    I don't think Oregon should seek to have the highest beer taxes in the nation, but to seek the lowest rung may not be a good strategy, either. Further, the success of craft brewing in other states regardless of their excise taxes puts the lie to the notion that taxation = bad craft brewing business climate.

    Oregon has succeeded in craft brewing not because of the absence of taxation and it will not fail with reasonable taxes, either. We are blessed in Beervana with great access to raw materials and, now, a more than critical mass of brewing talent and thanks to blogs like this one and other resources, drinking expertise.

    I don't advocate the specific rate of taxation proposed in the current house bill. I also don't advocate running to the barricades every time Salem suggests an increase in the beer tax. The industry needs to start leading instead of fear mongering on the issue of taxation.

  4. Mark,

    It's worth noting that the anti-tax people aren't monolithic. Industrial brewers and craft brewers are in different situations. People like me don't give two figs what happens to Bud, but we care a great deal about micros. Personally, I could live with a hike in the beer tax if it were structured reasonably.

    I think, though, that it's unreasonable to expect a targeted industry to embrace a tax. You couldn't name a single industry that would welcome a tax targeted directly at them (in addition to the normal state and federal taxes they already pay). Oregon craft breweries quite rightly don't understand why they need to pay for meth addiction remediation. It's hard under any argument to see why they should bear this burden.

    Moreover, I don't know that the state has ever proposed an incremental hike. They always do this massive death tax that no brewery in the world could support. You can't blame them for the crappy thinking on the part of Oregon legislators. What would the discussion look like if the proposal were to double the tax? We don't know--they never do something modest.

    Okay, here's my proposal. Leave the current tax as it is for the first 100,000 barrels. (I'm flexible on this number, but at least 50,000.) Thereafter, increase the tax to Washington's tax of $8.06 a barrel. That's two bucks more a barrel than neighboring California's, but with the offset, would raise less than WA's. That would put Oregon above the median--about 20th highest. It's appropriate for a state with the most robust beer industry not to hammer its own. Look down the list of high-tax states, and only one--Alaska, the highest--has anything approaching a robust micro scene.

    I doubt the Brewers Guild would support it, but I think they could live with it. The state would have to suck it up, too, and recognize that they can't tap beer a single cash cow, and find revenues elsewhere. That neither side would like this approach probably means its a good one.

  5. "Anti-tax advocates should reveal their mathematical formulae for reaching $6.00/pint if they expect us to believe their numbers."

    I'll break it down a little. Bear in mind that these are average numbers; different breweries, distributors, and bars have different cost structures that may affect the individual business.

    ~Brewery A produces a keg of beer. Their cost to produce the beer (including labor, ingredients, utilities, and taxes) is $65. They take a 30% margin on that keg and sell it to a distributor for $95.

    ~The distributor takes that keg, adds a 25-30% margin and sells it to a bar for $135.

    ~Most bars mark up the price of each pint by 300-400%, so if they pay $1.10-1.25/pint they'll charge $3.50-4.50 for that pint.

    There's the current state of things. Now for the example with this new tax.

    ~Brewey A produces a beer. The new tax will add roughly $25 per keg, which brings their cost up to $90. Taking the same 30% margin, they now sell the keg to the distributor for $128.

    ~The distributor takes that keg @ $128 and adds their 30% margin before selling the keg to a bar for $185.

    ~The bar takes that keg, calculates the per pint cost at $1.53, marks it up by 300-400%, and you end up with pints that cost $4.75-$6.25 each.

    Voila! $6 pints.

  6. Jeff,

    It is quite appropriate for an industry to work with legislators to craft appropriate taxation. It's done all the time. What doesn't work is the current scenario where every time legislation is proposed, a massive show of strength is mounted to oppose it. I think the legislators show equally bad faith. They or appropriate committee members or their staff should be reaching out to the industry to seek their input and make their case for taxation.
    I agree that brewers should not shoulder the burdens of methamphetmine treatment. It's a ruse at best to say we will direct beer (or cigarette or any specific tax) only to conditions that we can somehow isolate. Again, legislators bear a responsbility to be truthful about why taxes are collected and how they are used.
    Your own proposal in this commentary is precisely what I believe should happen. My point is that the 'Guild should be leading the charge instead of spending its energy forever in opposition.
    My belief is that Oregonians may ultimately get a tax that they don't like unless those who know the most about the effects, brewers and drinkers, get more realistic about taxation. From a political standpoint, no one will be happy when eventually a tax rate is identified that Salem will enact. If brewers only response is, "No tax," then they will find themselves on the outside looking in and living with the consequences.

  7. Chris,

    I have run numbers similar to yours and with similar conclusions. My point, which you illustrate quite well, is that it is not automatically a $6.00 pint, but is in a range. It also assumes that excise taxes must be included as a price of doing business and marked up rather than added simply as a pass along. Or, they must be marked up at the same rate as the other costs.
    Don't get me wrong. I don't favor spending more for a pint, per se. I also believe the current bill on the table is far too high and far too great a jump to be justified under any condition.

    To Jeff's earlier post about reporters perpetuating misinformation about the "15 cents/pint" increase, the same problem applies to the reporting of the $6.00 pint. Your commentary goes a long way to demonstrating the rationale behind the numbers and this blog goes a long way toward revealing some of the nuances of the debate.
    Thank you both.

  8. "It also assumes that excise taxes must be included as a price of doing business and marked up rather than added simply as a pass along."

    Unfortunately, when a bar receives an invoice for a keg it's listed as:

    1 x 1/2bbl Sierra Nevada Pale @ $136


    1 x 1/2bbl SNPA $90 (+$30 in tax)

    The distributor/bar/retailer has no way of knowing what the freight or tax is, so they have no choice but to factor in the entire cost of goods they've just purchased when they calculate their margins/markups.

    In an ideal world the freight and tax would be separated on the invoice at all levels, but that would create so much paperwork (and headaches) that it would never be adopted.

    Even if it was invoiced separately the bars would likely factor it into the cost of business because Oregon is a COD state, which means the bars have to pay for the keg (and the tax) immediately, even if they won't recoup that money until they tap the keg 3-6 months later. The money tied up in that has an opportunity cost associated with it too...

  9. Mark wrote: Brewers and beer consumers should not be called upon to prop up the sagging receipts in Salem, but they should not imagine that they have no responsibility, either.

    The entities that are shirking their responsibility are not taverns but churches, which have a completely free ride. Their revenues come from donations that are untaxed income, and they take up prime real estate without paying any property tax on it.

    Instead of sin taxes and legislating morality, let's tax religion and legislate nosiness.

  10. Bill, I hope that is a joke. Whether you are a part of an organized religion or not, the outreach churches do for those in need is undeniable and is generally given regardless of the receiver's beliefs. If we're speaking from a place of taxes as a from of disincentive, taxing churches is counter productive because they step in and provide services that in many cases our government is unable to. Please separate the institution of religion (which are many and varied) from the good works that are done at the grass level.


    Oregon is known for their craft brew. The above link is a compilation of all of our breweries.

  12. Now I sound like Maude Flanders, too early for a beer?

  13. Perhaps instead of a "sin tax," we start delegating a proactive responsiblity? Instead of parents saying "Drinking is bad, little Jonny." And then drinking a great american lager while watching cars go round and round (or any other stereotype) we suport a little alcohol awareness at home. Don't let your children's first experience with beer be a 40 of Old English that some guy bought for them, or the standard Coors Light Kegger at college. Pro-active, not re-active.
    Also when we find some scumbag slinging meth to a group of 14 year olds out side of school, we should not waste state moneys on incarceration and rehibilitation. Maybe we should just shoot em on the spot. "Hang 'em high."
    An ounce of prevention is worth a pound of cure.