Taxes and Production

The Tax Foundation sent me the following graphic about beer taxes in the US. It is interesting largely because the difference between low tax states (around a dime a gallon or less) are way lower than the high tax states (in some cases over a buck a gallon).

I wondered, how does this compare with the production numbers in those states? No time to do a sophisticated analysis(Ireland planning!), but the raw numbers are at the very least suggestive.

Never Talk Politics or Taxes at Christmas

Do it a day and a half before. 

This has been percolating for a long time, but it is perhaps gathering strength.  (Since Congress is frozen by trench warfare, maybe a tax cut that benefits small businesses principally clustered in blue states is just the ticket.)

At issue is a tax that the federal government assesses on a few products like beer, wine and gasoline and gets included in the price. The excise tax on beer is $7 per barrel for the first 60,000 barrels and $18 per barrel on anything above that. A barrel is a standard unit of measure in the beverage industry and contains 31 gallons of beer.

The Small Brew Act, co-sponsored by 136 House members, would reduce the levies to $3.50 per barrel on the first 60,000 barrels of beer, and to $16 per barrel on 60,000 to 2 million barrels. The current $18 rate would be retained on production exceeding 2 million barrels, under the measure.

DeFazio tours the OSU Fermentation
Sciences Lab. I believe that lanky gent
to his right is the illustrious hop
researcher, Tom Shellhammer.

If you don't follow politics, this is a fantastic way to introduce yourself to small-bore regional horse-trading.  It's not really an issue that cuts along ideology: it cuts along geography.  

Making the case for the nation’s 2,700 microbreweries is the House Small Brewers Caucus, founded in 2007 by Oregon Reps. Peter DeFazio, a Democrat, and Greg Walden, a Republican.

Since this would lower the tax burden for 100% of Oregon's breweries (though in different degrees), both congressmen are high on it.  Who is not high on it?  Congressmen with large breweries in their states:

The two beer giants, Belgium-based Anheuser Busch-InBev, the maker of Budweiser, Corona, Beck’s and Stella Artois, and Chicago-based MillerCoors, whose parent companies are headquartered in Denver and England, have put their political muscle behind legislation that would halve the excise tax for all brewers, regardless of size.

The BEER Act, introduced in May by Sen. Mark Udall, D-Colo., has eight co-sponsors. A House companion, filed by Iowa Republican Tom Latham, has 72 backers.

The  economics are pretty obvious.  It's more expensive to make beer in smaller amounts, so tiering the tax structure does something to remove the advantage of very large, efficient breweries.  That means the price of a sixer of Budweiser and Ninkasi creep closer together at the grocery store, which is of course great if you're Ninkasi.  The question is: should Washington be artificially leveling the playing field?  This is a purely philosophical question.  Or, if you're a congressman, a regional one.

Regulating Liquor: Axing the Government Liquor Store

Part three in The Oregonian's series on Oregon's liquor laws comes just at the moment we learn a little more about what's happening in Washington state, which ended the practice of government-run liquor stores.  The effect?

Liquor sales in Washington are up – way up. That’s according to new figures out Monday on the period after the state’s new privatization law took effect. They show July’s retail sales increased 21 percent over the previous year. And that’s despite higher prices on spirits.

Graphic: Wall Street Journal.

What has been surprising is that, along with the spike in consumption (not surprising--the old "control" model was engineered to suppress availability) Washington has also seen a spike in prices.  That's because, along with privatizing liquor stores, the state also jacked up taxes:

Even before privatization, Washington had some of the nation's highest liquor taxes and fees, at $26.70 a gallon. The national average is $7.02 a gallon, said the Tax Foundation, a research group. Washington state's levies included government stores' 52% markup, a 21% liquor sales tax and a $3.77-per-liter excise tax.

And while those sales and excise taxes remain under privatization, new fees further raised prices: Liquor distributors must pay an additional 10% levy, and retailers another 17%. Distributors also are on the hook for any shortfall to the state if they don't generate $150 million from the 10% fee by April.  (Wall Street Journal)

Washington knew that increasing the points of sale from 328 to 1500 stores would increase sales.  Both to try to put a cap on how much booze people bought and to raise revenues, the state's new taxes will blunt demand (or, as that Wall Street Journal article documents, drive customers to Oregon).  There were other consequences, some intended, some not.

The interests who forwarded Washington's law were big-box retailers led by Costco.  Distributors were the big losers in Washington's law, which allows Costco and other retailers to buy directly from distillers.  But small retailers, who are barred from selling liquor (Costco wrote the law so only stores of 10,000 square feet could sell liquor) were also losers.  Small distillers and vintners may also be losers--big retailers can now use their might to drive volume discounts, which hurt smaller companies that have less pricing flexibility.  There may be other consequences, too, like a further shift away from bars to home consumption, which would make publicans losers as well.

In one jarring move, Washington dramatically shifted the business of booze in Washington.  Voters had a lot of assumptions about what the law would do: they thought it would make booze more accessible--but not too accessible; they thought it would be good for family wineries and restaurants, that it would lower liquor prices, improve crime prevention, and raise new revenues for public services.  The early record is mixed, but it's clear things aren't playing out exactly the way voters intended.

Oregon leads the nation in artisanal beer, wine, and spirits.  We have an archaic liquor control model that has a contradictory mission--selling booze on the one hand while trying to control it on the other.  And we also have lots of big players who stand to make--or lose--a lot of money based on how the laws are structured.  I'd like to see Oregon tune-up the OLCC and potentially get out of the business of selling booze.  On the other hand, it was from within the current environment that our artisanal culture emerged and flourished.  Looking north to Washington, I wonder how small distilleries and wineries will manage.  The key is balancing the interest of producers with retailers (big and little, grocery store and bar).  No wonder no one has managed a complete overhaul in 78 years--it's complex, confusing business.

Your thoughts?

How Should Oregon Regulate Alcohol?

The Oregonian kicked off an excellent three-part series yesterday on the thicket of regulations that govern the distribution, taxation, and sale of liquor in Oregon.  Every state has its own strange thicket of regulations, all built on certain goals and assumptions, and until very recently, Oregon's seemed to be untouchable.  But then a funny thing happened: the people of Washington state decided to modernize their laws, bringing them more in line with California, and Oregon is now the West Coast's odd man of booze.

The whole series is going to be worth a read, but today I want to tackle some of the issues raised (and not raised) in part one.  Political writer Harry Esteve penned the series, and he used three main informants about how the system works--A to Z Winery in Dundee, Galaxy wine distributor, and the Oregon Liquor Control Commission.  (Esteve has written about the OLCC before, and it's worth noting that A to Z has long been an OLCC foe.)  Esteve does a fantastic job of illuminating why a bottle of wine costs as much as it does.  It's not because the winery (or brewery) is getting rich.  It's because so many people get a piece of the action along the way:

Each time it's handled, the price of a bottle goes up. The storage warehouse gets its cut. The state gets its cut. Distributors tack on anywhere from 15 percent to as much as 40 percent or more. And retailers tack on their margin.  On a recent delivery trip, Galaxy applied its markup to a bottle of A to Z pinot gris and then sold it to Safeway for $8.99. Safeway put it on sale for $11.99, a 33 percent markup. 

This is a theme he address more fully in today's column (which I'll comment on tomorrow).  The paper also published a great infographic that breaks down the cost of a bottle of wine by percentage:

• 2% - Taxes
• 4% - Bottles, corks, and labels
• 5% - Winery profit
• 7% - Grapes
• 9% - Wine production
• 18% - Sales, marketing, administration, shipping
• 25% - Distributor markup
• 30% - Retailer markup

All of this is fantastic info, and info I'm pretty sure is completely lost on the average consumer when she sees a $30 bottle of Oregon pinot noir made just down the road.   Where Esteve falls down a bit on the job, though, is in buying the OLCC's gilded rationale for its own existence:

Yet it's also one of a dwindling number of states where the government exerts near dictatorial control over an alcohol system designed 80 years ago to prevent the likes of Al Capone from horning in on the trade....

"What's interesting is the OLCC has done such a good job of preventing the abuses that came up during Prohibition," [Cassandra SkinnerLopata, OLCC chair] says. Other countries, and even some other states, continue to see health problems from "adulterated" liquor, including blindness and paralysis. Counterfeit brand-name liquor continues to be a problem, she says. 

 Well, yes, in 1933, Oregon was worried about bootlegging.  But that's not what it was principally worried about.  Here's the full rationale from the 1934 Liquor Control Act that established our system of liquor laws:

(1) The Liquor Control Act shall be liberally construed so as:

(a) To prevent the recurrence of abuses associated with saloons or resorts for the consumption of alcoholic beverages.

(b) To eliminate the evils of unlicensed and unlawful manufacture, selling and disposing of such beverages and to promote temperance in the use and consumption of alcoholic beverages.

(c) To protect the safety, welfare, health, peace and morals of the people of the state.

(2) Consistent with subsection (1) of this section, it is the policy of this state to encourage the development of all Oregon industry.

I have bolded the relevant portions to illustrate the point: the state of Oregon may have been compelled by the 19th amendment to allow liquor sales, but they damn sure weren't going to make it easy.  The OLCC may now see their role as one entirely about law enforcement, but the very clear foundation of the statute is to gum up the production and sale of booze.  Oregon passed its own version of Prohibition in 1916--years before the country did it--and we were still in a mood for restricting alcohol.

This is relevant history, because the OLCC defends its existence on the dubious notion that they're preventing criminality.  But as citizens, we have a right to point out that that's not really why the laws were drafted in the first place.  They were drafted to stifle alcohol sales, and for 78 years they've been doing a bang-up job.

Tax Law Theater (More Entertaining Than You Expect)

It's been at least three months since we've had a beer tax post--far too long, don't you think?  Today's post is mainly just a recap of a fascinating little drama that played out when the importer Shelton Brothers (who bring you at least half the exceptional imports you drink regularly) decided to wade into New York's tax laws.  Like any lawsuit, the details are confusing and oblique, but essentially, Shelton Brothers managed to strike down a tax break the state gave to local small breweries.  Oregon has one of these, too, as I assume many states do.  So:

What does this mean for local brewers? Well, let’s take an in-state brewery like Captain Lawrence, whose new brewery has a capacity of about 40,000 barrels per year. Any of that beer sold in New York State is now subject to a new state excise tax rate of $4.34 per barrel. The previous rate? Zero. Captain Lawrence brewer Scott Vaccaro estimates on his site that the rule change will subject his beer to about $100,000 in added expense each year.

Guess how popular the lawsuit made Shelton Brothers?  Today they responded in BeerAdvocate, violating several rules of damage control with this beautiful lead-in:

We’ve heard that there's been a bit of banter about the recent New York Supreme Court ruling, mostly by ill-informed and emotionally fraught bloggers. (Keep those death threats coming, folks!) The facts here are really quite simple, though the legal and financial issues are apparently a bit difficult to comprehend. 

Yep, that's going to settle everyone right down.  (The whole piece is embroidered with inflammatory name-calling and thinly-veiled derision--and is therefore an excellent read.)  Their arguments are two: first, that the thing they really cared about was having to spend $150 a pop to register beer labels--from which small NY breweries were exempt--and second that the tax thing was unfair to them, so suck it, Empire Staters.  Seriously:

It really isn’t for us and other out-of-state brewers and importers to say whether New York should keep its beer taxes or do away with them, as long as we outlanders are not the only ones paying the taxes while New York brewers go tax-free.  If it really is a matter of whether Brooklyn’s head brewer gets a bonus or not, New York has to decide whether it wants to give him and his colleagues that money, or use it for other essential services, like education, fire and police protection, etc., etc...

If any New York brewers tell you now that they can’t raise their prices, even so slightly, because that will make their beer more expensive than beer from their small out-of-state competitors, that is nothing but an unwitting admission that up until now they’ve just been pocketing the savings they enjoy from that unfair tax exemption, rather than passing it along to consumers in the form of lower prices.

To which, you will be unsurprised to learn, there was plenty of reaction.  (PR note #1: if the response to your clarification is how jerky the clarification was, you've failed.)  One of the reactors was a Mr. Garrett Oliver of the Brooklyn Brewery,

I pointed out that I like many of the beers he imports, that I have helped promote them (as most of us have, in some way or other), and that I've poured them in numerous tastings. Why, I wondered - talking, as I thought I was, to him alone - would he want to do a thing like this? Even if his statements regarding tax law are correct (and I have no idea whether they are), many states have situations that in some way favor in-state brewers. Frankly, it never occurred to me to think of them as unfair. I will not go down this path and print bits and pieces of Mr. Shelton's response; I would, however, characterize it as inflammatory. Mr. Shelton and I have had many heated arguments, often to the wee hours, all over foreign capitols; it's a running joke at this point.

I have a strong sense that all the reactions are not yet in.

In conclusion: 1) many times sellers of good beer are not on the same team with regard to tax law and sometimes makers of good and bad beer are; 2) companies are fools not to pursue their own self-interest even when that may make them unpopular with rivals, but 3) since they function at least partly through the goodwill of their consumers, it would behoove them to at least look like they're not total jerks.

Good times.

Will a Massive Beer Tax Crush British Pub Culture?

I have recently been thinking a lot about the causes and conditions that create beer styles. Ingredient availability and type was obviously the most important historically. But other factors exert a surprising effect, like wars, economic changes, and laws. That last one is especially relevant in the current age, when globalization has reduced the influence of the others. Take for example the news in today's paper, that on Monday, Britain is set to raise the tax on beer by another 7%.

"Later today, the Chancellor George Osborne, is set to announce the new Budget and along with that will be an increase in beer tax of around 7%. The beer duty escalator, set in place by the previous government, is set to lead to an increase of the Retail Price Index (RPI) percentage plus two per cent."

This is just the most recent in what is a shockingly precipitous rise in beer taxes:

"The recent VAT increase, 6p per pint, has followed a 26% increase in beer duty since 2008. With the current high rate of inflation the sector is facing a further 7.1% beer tax increase this month. This would result in beer duty having increased by 35% in three years."

And: "The Campaign for Real Ale (Camra) attacked the Chancellor's decision to impose a "damaging" 7.2% increase in beer duty, saying that the average duty and VAT on a pub pint will now exceed £1."

The effects, of course, are catastrophic. In an effort to save money, people are staying home and drinking packaged beer, leading to a failure rate of British pubs in the thousands (currently, 25 close every week). Failing pubs means job losses--ten thousand alone are the predicted result of this latest tax hike.

Bizarrely, it will almost certainly result in lower tax revenues as well, as drinkers consume less. And herein lies the effect of law on beer. For centuries, pubs have played a major role in the life of British communities. Britons have exchanged their passions over the course of time--porter to Burton ale to mild, bitter, and finally lager--but they've never abandoned the way they drink beer. It's not an exaggeration to say that the vibrancy of British beer depends on the primacy of the local pub. Remove it and beware the effect on beer and brewing.

If you look carefully at the dense batting of clouds mounding in the skies, however, you will see one tiny shimmer of silver:

"However the Government does deserve credit for the 50% reduced rate for beers below 2.8% abv. It will act as a spur to innovation in what is a vital UK industry, and over time, should help nudge consumers towards lower-strength drinks.

This is useful because the only breweries producing beer that weak will be local. It further demonstrates the power of law to shape styles. Will we henceforth have a beer called a mild mild? (By offering a boon only to beer barely stronger than Fanta, it also reveals the anti-alcohol agenda embroidered into this whole debate.)

We do not have a surfeit of locations with rich beer culture on the planet. It pains me to see one of the best deliberately trying to abandon a proud national heritage.

Legislature Proposes 200% Beer Tax Hike in Washington

Democrats in Washington State have an idea for patching the budget hole: a tax on candy, gum, and beer.

The tax on beer would hit the so-called “Joe Six-Pack” consumer, but shelter products from small, in-state breweries that sell a higher-priced brew to a more well-heeled clientele. The beer tax would go up by 50 cents per gallon, up from about 26 cents today, according to the Department of Revenue. UPDATE: On a six-pack basis, the tax goes up from 14.661 cents to 42.786 cents.

Them there sentences is filled with a richness of false assumptions, deceptions, and missing information, so let's start at the top:

• The writer provides the classic 1988 "boutique beer" framing here, arguing that local breweries are chichi artisans who sell only to the wealthy. This is pure hogwash, though someone needs to do a survey to find out what the real numbers are. Poor people buy expensive beer, full stop.
• It is pure spin to characterize a wholesaler-assessed excise tax as a cost-per six-pack. The only thing we know about excise taxes is how much they cost breweries--how they'll be reflected in the marketplace is totally unpredictable.
• Nowhere could I find definitions for "small, in-state" breweries. No doubt there's a definition, but we'll have to wait and see.

Based on my quickie math, the current excise tax on a barrel of beer is about $8. With this tax, it would rise to $23.5o for some breweries. Would small Oregon breweries be subject to it? Would large Washington breweries? We'll have to wait an see.
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Beer Stimulus?

A new bill introduced in the House of Representatives would lower the excise tax on craft breweries. It was introduced by a bipartisan group of eight Reps, including Oregon's DeFazio and Blumenauer. Details:

• For breweries producing less than 60,000 barrels, the per-barrel tax would drop from $7 to $3.50
• For larger breweries, the tax on all barrels produced between 60,000 and 2 million would be taxed at $16, rather than the current $18.
  
• All barrels over 2 million would be taxed at $18 per barrel.
  

This is an update on the 1976 small-brewer tax rate, one that has never been adjusted. It targets only the federal excise tax, not state taxes.

For an idea of how this would affect breweries, here are some calculations I made for various sizes of breweries:

5,000 Barrel Brewery
Current law: $35,000
HR 4278: $17,500

30,000 Barrel Brewery
Current law: $210,000
HR 4278: $105,000

75,000 Barrel Brewery
Current law: $690,000
HR 4278: $450,000

150,000 Barrel Brewery
Current law: $2,040,000
HR 4278: $1,650,000

Although it's not embeddable, there's a great news video from Colorado describing the legislation here. A pdf of the legislation is here.

The Brewers Association favors it, and no doubt all breweries do, too. This could add up to tens or hundreds of thousands of dollars to a brewery or brewpub. However, the policy wonk in me wonders why we'd be lowering taxes on small breweries now. It's a tiny drop in the bucket to the federal budget (costing the government just a hair over $40 m). But of all the sectors of the economy that could use stimulating, craft brewing seems like the last in a very long line. Some breweries have no doubt suffered in this economy, but as a whole, craft breweries continue to grow and prosper. The idea of federal stimulus is to get stalled industries moving. Any job's a good job, and this will definitely create jobs, but should we be handing out tax breaks to a healthy sector when others are dying on the vine?

But hey, don't let me be the diacetyl in the beer--this would be good for Beervana if it passes.

Hat tip to JG for flagging this down and emailing me the news.
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No Sin in the Lottery Dollars

Last year, amid fireworks over the beer tax, the pro-hike camp liked to make a lot of hay about the evils of drink. If you'll recall, they attributed to beer enormous human wreckage: teenage drunken driving, addiction, even the scourge of meth and child abuse. Why do you suppose it is, then, that the state is now encouraging bars to keep their share of lottery profits?

Director Dale Penn said cutting gambling commissions would be "too risky" for the Lottery and the bars and taverns that offer video gambling. He said Oregon's ailing economy and loss of business to bars by the state's smoking ban have taken a toll on gambling sales.

If too many bars and taverns go out of business, he said, the lottery would have fewer places for people to gamble.

"Increasing overall sales is the method to maximize revenue for state programs," Penn wrote. "To do so requires a strong retailer network, not a reduced fragmented group."

And if they can't gamble, the state loses lottery revenues--a significant source of revenue for a state with a patchwork Frankenstein's monster of a funding system. I'm not opposed to lottery revenues--it's a voluntary expense and means we don't have to raise taxes or cut spending elsewhere. But there's no way to argue that this doesn't encourage all the evils the beer tax was puportedly designed to reduce.

So which is it, Oregon: is beer so sinful and harmful it should be taxed heavily, or is it an important part of the state's wholesome revenue streams? You can't have it both ways: either you're mucking around the sinful swamp with the beer drinkers, or you're standing on dry, high moral ground eschewing all that dirty money.

The 2009 Beer Tax: Daid

Well, it's happened once again--the latest version of the beer tax has died of asphyxiation. As a historical matter, this is hardly new: every couple years, someone proposes a new beer tax, and every couple years, it gets shot down. However, I see some signs that things may be changing. You can see evidence of this shift in the obituary Janie Har wrote in today's Oregonian (I'll highlight the interesting bits):

[Rep. Ben] Cannon [D-Portland] had originally proposed raising the privilege tax on beer from $2.60 a 31-gallon barrel to $49.61.

His latest proposal, with Sen. Floyd Prozanski, D-Eugene, would raise the tax to $5 a barrel for smaller craft breweries and $23 for big beer makers that pump out more than 2 million barrels a year. That would raise about $85 million every biennium for public safety and alcohol and drug treatment. (Each barrel contains about 330 12-oz glasses or 248 16-oz. pints.)

When this year's debate commenced, Senator Cannon made a few key mistakes with HB 2461: he treated all beer the same way, making no exemption for small local brewers; he started the tax out at a rate far in excess of the current highest state tax in Alaska and twenty times the current rate; he used language in the bill accusing brewers of sins ranging from teen consumption and death to child abuse. In service of the bill, he also used language I found frankly dishonest, characterizing the tax as a per-glass hike.

As the Janie Har piece demonstrates, we are not where we started. Cannon has addressed most of my own concerns: the current proposal is much more modest; he treats small local breweries differently; he devotes the money to public safety and drug and alcohol treatment; he's dropped the phony language. Now we're talking very clearly about a tax on breweries and how the revenues will be spent.

This is a bill I could support. I would prefer and exemption on the tax hike for a certain number of barrels sold in Oregon--say 50,000--and then a tax of $8-$10 per barrel on all remaining sales. This would treat all breweries fairly but still give the smaller players a little breathing room. The problem with this proposal is that it creates two classes of breweries, and this seems a little funky. More importantly, by putting the tax at $23/barrel for big breweries, Cannon invites a huge fight: that would make Oregon the 5th-highest in the country. Paul Romain, the famously powerful big-beer lobbiest, would certainly have something to say about that. But I could live with and would support the bill as Cannon describes it.

No doubt we'll be talking about it again in due course...

Beer Tax Update

I anticipate this being a bit of a low-blogging week, and as evidence, I offer this brief post with two items on beer taxes. First, from Forbes, evidence that high taxes in Britain are damaging pub sales.

"Tax rates in the U.K. suck an awful lot out of the pub sector," said Hastings, who believes that pub closures and beer duty are connected. "Over the last 12 months, beer tax increases have taken an additional 600 million pounds ($984.5 million) out of the sector. It goes to show the scale of the money not being spent on marketing, improving pub quality and competitiveness."

The increased beer duty and the collapse of the British pub trade also bodes ill for Britain’s tourism trade. "Around the world, the British pub is regarded as a unique institution. It’s just one of the reasons people flood to Britain every year," said Hastings. "If we were in any other country in Europe, their governments would be doing all they can to furnish these institutions."

One of Beervana's signature qualities is, of course, our density of wonderful pubs. Which brings us to rumors that Ben Cannon's beer tax proposal may be back on the table in Salem.

The capitol is a buzz with talk of the beer tax making a late crash to the Legislative party. The Beer tax supporters are pushing a round of lobby calls to push through a master beer tax compromise. While under the emergency speed session rule, ordinary citizens may not know what this is until it hits.

(Though it should be noted that Cannon's updated proposal is likely to be a whole lot more reasonable than his first version.)

Ben Cannon Speaks (About the Beer Tax)

Second-term Representative Ben Cannon has a fascinating post on BlueOregon this morning. He is, as many of you will recall, the sponsor of the latest version of Oregon's perennial (and perennially-defeated) beer tax. In the post, he describes the lessons he's learned trying to push this through. I'd say the whole post deserves a read, but I'll distill the post here, in case you'd like to continue a discussion we've had for lo these many months.

1. "Whereas" clauses matter.
Like many bills, House Bill 2461 includes a preamble consisting of a series of "whereas" statements (e.g. "Whereas addiction is defined as a chronic, relapsing brain disease that is both preventable and treatable")... The tone left some brewers and beer enthusiasts, the vast majority of whom consume beer safely and responsibly, feeling defensive about their product -- before they even got to the legal meat of the bill.

2. I get to set my legislative priorities, but not the level of attention those priorities receive.
As my legislative priorities go, raising the beer tax has not been at the top of the list. I ran for the Legislature with an interest in education policy, health care reform, and reforming our unstable and inadequate system of public finance.... Yet the beer tax has drawn far more public attention than any other issue I've worked on in three years. In retrospect, I should not have been surprised. The media loves tax proposals and finds this one, with its everyman impact and moral innuendo, particularly irresistible.... When we introduced the bill, I wasn't sure it would even get a committee hearing. Six months later, I have had to spend more time defending this proposal than any other.

3. Fifteen cents was too high.
This is a tough one to acknowledge, but it's true. If beer taxes were applied at point of sale, I have little doubt that beer producers and drinkers could easily withstand a fifteen cent increase in Oregon's less-than-a-penny beer tax. But beer excise taxes are paid by breweries (for beer brewed in Oregon) and distributors (for beer imported from out-of-state).

4. Beer taxes are marked up to the consumer, by about twofold.
Research about the impact of beer tax increases in Alaska and other states, published by the National Tax Journal and the National Bureau of Economic Research, concludes that beer taxes are marked-up, on average, by a factor of about two. In other words, raising the excise tax by 15 cents increases the price of a bottle to the consumer by about 30 cents -- after middlemen have taken their cut.

5. Beer is an important part of the cultural and economic fabric of Oregon.
Well, duh.... They're a major source of civic pride. But to be honest, until this experience, I did not have a full appreciation for the passion that many Oregonians have for their beer, not to mention the number of people who work in the industry.... In drafting the legislation, I focused on the fact that 80-90 percent of Oregon's beer tax revenues are generated on large, corporate, out-of-state beers. The remainder is a small percentage of the total, but it is still a huge industry for this state.

So have I changed my mind about raising the beer tax?
Absolutely not. The facts remain: Oregon hasn't raised its beer tax in more than 30 years. Ours is among the very lowest beer taxes in the country.... But I have tried to apply the above lessons to a new version of the tax. My colleagues and I have worked on an amendment that would raise the tax to 1.5 cents on beer from "small" breweries (ones that meet the federal definition of under 2,000,000 barrels per year, including every brewery in Oregon). For beer from large, out-of-state breweries, it would go higher; say, 5 or 7 cents. We would dedicate the revenue (somewhere in the range of $80 million per biennium) to public safety and addiction treatment. (And we strike the "whereas" clauses!)

As you can see, Cannon has made two major concessions here: he's admitted that the tax was way too high and that the per-glass figure he used to sell the bill was based on a faulty calculation. It's admirable for a legislator to offer a "lessons learned" post on a bill that didn't make it. Again, you should read the whole thing if you're interested.

Beer Taxes and Industry Vibrancy

A couple days ago, Jay Brooks posted an interesting graphic from the Tax Foundation showing the exise rates per gallon in each state. Brooks' comment:

It’s worth noting that all the southern states have high excise taxes on beer, where the idea of drinking being sinful is, I think, more prevalent.

That's a good point. But something else is worth noting, too. Look at the map. Now look at the high-tax states. Utah, the South, Oklahoma--these are not generally regarded as brewing hot-spots (click to enlarge).



I don't want to identify the direction of causality here, but it is striking to look at the difference among the categories of taxation and see how many breweries they have per-capita. Within these categories, there's one brewery for every:

Low tax states: 164,728 people
Med tax states: 198,331 people
High tax states: 366,526 people
National average: 204,906 people

So medium-tax states are have about as many breweries per-capita as the national average. But low-tax states have 2.2 times more breweries per-capita than high-tax states.

If Oregon were to pass the current beer tax as written, we'd go from 8 cents a gallon to $1.67 a gallon--60 cents higher than Alaska, the current high. Maybe there's no causality here--maybe Southerners just don't do microbrews. But maybe there is a relationship. This is what gives me the willies--I'm just not willing to take such a massive gamble that there isn't a relationship.

Beer Tax in Today's O

I've been watching the news from Salem for hints that the beer tax was picking up strength. So far, nothing--despite proposals to raise a portfolio of other taxes. However, in today's Oregonian, Mark Kirchmeier tries to give it a little life. Kirchmeier owns a pub, but was formerly involved in politics. He sings a song we've heard a million times--a mixture of false assumptions, mis-statements, and disingenuous logic. It can be summarized thus:

1. Beer wreaks economic havoc on the state and the taxes don't cover the damage.
2. The per-glass cost (he cites a 12-ounce glass, just to make it even more absurd) is low! The per ounce cost is negligible! (Okay, he didn't argue that.)
3. Brewers are nothin' special, not the "icons" (his word) they claim to be, and we shouldn't be protecting them.
   

He does admit that Cannon's bill is excessive, and suggests a price hike of 5-7 cents a pint.

I've argued against phony arguments like this enough times that it doesn't bear doing so again (see here for a previous rebuttal, a general discussion, and here for a philosophical discussion; here are stats relevant to the issue, and here's a list of comparative state beer taxes). I will point out that nowhere does Kirchmeier mention that this tax affects only breweries--he couches it as a tax on bars. He refuses to mention the cost to brewers, using that BS per-glass formulation over which he has only part control. And finally, his derisive dismissal of local breweries (whom he lacks the courage to actually identify) is further spin.

There's nothing moral about taxes--they are a feature of public policy. But what enrages me is that the pro-beer tax camp won't argue the issue on it's face. They use dishonest arguments. When you're forced to do that, you know something's fishy. Kirchmeier's article stinks like a two-day-old carp.

Massive Federal Beer Tax?

If I'm reading this right, we may have very serious trouble ahead. USA Today is reporting that Congress is looking to raise taxes on alcohol, including what looks like a massive hike on beer:

Details of the proposed beer tax are described in a Senate Finance Committee document that will be used to brief lawmakers Wednesday at a closed-door meeting.

Taxes on wine and hard liquor would also go up. And there might be a new tax on soda and other sugary drinks blamed for contributing to obesity. No taxes on diet drinks, however.

Beer taxes would go up by 48 cents a six-pack, wine taxes would rise by 49 cents per bottle, and the tax on hard liquor would increase by 40 cents per fifth. Proceeds from the new taxes would help cover an estimated 50 million uninsured Americans.

I'm not always the sharpest tool in the box when it comes to numbers, but my back-of-the-envelope calculation puts this at $26.45 per barrel. That's a very scary number.

Beer Tax Shadow Darkens My Day

John Foyston sends along a press releases (pdf) from Oregon Partnership about the beer tax. I pass it along to you, so that your day may be similarly darkened. (And that's before the Blazers play.)

Coming on the heels of positive poll numbers and an endorsement by the Oregon Liquor Control Commission, a proposal to raise the Oregon beer tax for the first time in 32 years is attracting more support.

Such groups as Local 503 of the Service Employees International Union, Ecumenical Ministries of Oregon , the Oregon Prevention Education Recovery Association, and the Governor’s Council on Alcohol and Drug Abuse have thrown their support behind House Bill 2461.

They also mention results of a poll by Moore Information (about which I know nothing but, such is my nature, am skeptical):

• 61 percent of Oregonians favor increasing the beer and wine tax by fifteen cents a glass in order to ensure adequate funding for substance abuse treatment and prevention programs. This tax is supported in all regions of the state among Republicans, Democrats and Independents alike.
• Given a choice between cutting funding of substance abuse treatment and prevention programs or increasing taxes to ensure these programs are adequately funded, increasing the beer and wine tax is preferred by a margin of 64 percent to 29 percent.
• 80 percent of voters statewide are concerned about substance abuse, with voters outside the Portland Metro area most concerned.
• 64 percent expect substance abuse problems to increase as a result of the recession.

Time to gird again for battle...

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.)

Beer Tax in England Also Unpopular

It looks like Oregon isn't alone in girding for battle. The Campaign for Real Ale is mounting an effort to defeat a beer tax in the UK, too. All politics are local, though; in this case, CAMRA and pub-owners are arguing that a tax could hasten the decline of the beloved English pub:

Pub experts have urged the government to scrap a rise in beer tax in the next Budget because of the recession.

CAMRA chief executive Mike Benner said: "It is time for the government to think again in order to save the great British pub."

Rob Hayward, the chief executive of the BBPA, said: "The British beer and pub industry supports 650,000 jobs and makes a vital contribution to the British economy. Yet it has been hit by a succession of tax increases alongside more and more regulation."

He said nearly six pubs a day were closing and thousands of jobs were being lost.

The early effort, like our own, has been vigorous.

More than 25,000 people have joined the "Axe the Beer Tax, Save the Pub" campaign, which was launched by the BBPA and Camra last November.

A Parliamentary motion calling on the government to axe plans to increase this year's rise in duty and to do more to support local pubs has been signed by 155 MPs.

Hmm, a "support your local brewery" campaign. That has a certain nice ring to it, doesn't it?

Fundamentally Dishonest

I will use one of my allotted beer tax slots to highlight a particularly dishonest and misleading component of the backers' PR push. It has been successful enough that reporters now regularly parrot the talking point as if it's a part of the public policy under consideration. To wit:

The present tax translates into less than a penny per 12-ounce beer. It's about the lowest in the country, unchanged for 32 years.

The higher tax would tack a 15-cent tax on 12 ounces, a 20-cent tax on a pint.

That comes from an article in Thursday's Oregonian--though the calculation of the tax in terms of cost to the customer on a per-glass basis is ubiquitous. It's pure spin, and it's absolutely neither fact nor a part of the policy.

1. The bill proposes an excise tax on beer at the production side, not a retail tax. No one has any idea how much the excise tax will affect beer prices.
2. Backers use this framing device to minimize the perceived effect of the tax. This is political spin, not fact. Rather, it seeks to obscure fact. Some people use a different word for language that obscures fact.
   
3. Pinning the tax to a phony per-glass cost has the additional advantage of hiding who actually pays the tax. Consumers are asked to think they're picking up a very modest cost to pay for a large public benefit. Great politics, pure BS.

If any reporters happen to stumble onto this post, recognize that by identifying the costs using the spin of the beer-tax proponents, you are participating in the politics of the debate. That's not reporters' job, and my guess is the ones doing it aren't aware of the mistake.

PETA Joins the Beer Tax Debate

Okay, this is pretty amusing. I submit it without comment. (Though in the interest of full disclosure, I will note, apropos of having offended Ralph below, that I am a vegetarian. I do not support a meat tax.)

After learning that Oregon State Representative Ben Cannon is proposing a huge tax increase on beer, PETA [director Sarah King] fired off a letter to Cannon urging him instead to propose a 10-cent "sin" tax on every pound of meat sold in grocery stores and restaurants in order to keep beer cheap and Oregonians (and their economy) healthy.

The letter, which you can read in its entirety here, is mostly summed up in Sarah King's opening paragraph.

As an Oregon native and a beer aficionado, I was extremely interested to read about the bill that you recently sponsored to increase Oregon's tax on beer. On behalf of People for the Ethical Treatment of Animals (PETA) and our more than 2 million members and supporters worldwide, including thousands of Oregonians, I'd like to propose an alternative that would keep beer—a product that's important to the state's economy—affordable, yet still bring in needed revenue: an excise tax on meat. A 10-cent "sin" tax on every pound of chicken, turkey, pig, fish, and cow flesh sold in grocery stores and restaurants would not only raise funds but also help stop climate change and reduce health-care costs.

I don't know if this is a good idea in terms of public policy, but it does shine a rather bright light on the issue of externalities and the degree to which Oregon breweries should be picking up the tab for asserted public costs. The beer tax could be a pandora's box of new taxing ideas: meat, beer, wine, liquor, tobacco, potato chips, corn syrup, SUVs .... Okay, some are more persuasive than others. Still, once you start talking about costs to the state, you better be prepared to talk about other things, too.