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Thursday, February 11, 2010

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.


  1. Less taxes is always good in my book! Though maybe unfavorable to the Multnomah Countians.. :)

    If the bill passes though.. I highly doubt prices will drop on any of the breweries products. They will just keep the extra profit. Just a guess.

    Sometimes the diacytl is needed, to let you know what you are drinking, and to also remind you of what you want to be drinking.

  2. The politics of economic stimulus, rather than the realities of said stimulus, are at work here. Agree with DOSiR that we are not likely to see a change in retail prices of craft beer. However, the stimulus presumption is that those breweries who hold on to more money may be inclined to use it for expansion, which creates economic activity and increases jobs. It's far fetched given the small numbers. Agree with you, Jeff, that this is an industry and segment that hardly needs much stimulation.

  3. A healthy company is more likely to hire. A struggling company is more likely to pocket the the extra money (or pay down debt or sock it away in a reserve). Makes sense to me if you want to create jobs, you give the money to the companies that have shown the can create the most bang for the buck.

  4. Great comments guys. I know politics in this forum are an absolute 'against the rules' thing. But I love the remarks, and agree.

    But take special care and notice... that craft breweries/brewpubs are a perfect example of small business, supply and demand, and also free-market principles.


  5. Remind me again why we need a Federal excise tax in the first place? Other than "because we can"?

    From the Beer Institute website:

    "In 1990, Congress raised taxes on luxury items like expensive cars, fur coats, jewelry, yachts, and private airplanes and doubled the federal excise tax on beer. This was the largest single increase in the tax on beer in American history and resulted in some 60,000 people losing their jobs in brewing, distributing, retailing and related industries.

    Today, all of the other luxury taxes have been repealed, but the beer tax remains in place."

    It's all about personal politics. Enough people think that beer is a net negative to society, so they throw a tax on it to try and raise the price and reduce consumption. Oh and make a profit on it too, to pay for government. Because they can.

    As for whether or not they need the money: this tax break is by definition targeted at small businesses, and by definition, smaller businesses have less access to capital than bigger ones. The current federal tax structure is two-tiered for good reasons: ability to pay, enabling growth, etc. With the current financial crisis, every business has had their access to capital restricted. But it's hit the small guy harder. Put a few extra thousand dollars in the small guy's hands and he can maybe leverage that into a construction loan he couldn't otherwise get. He creates jobs. Small businesses create jobs.

    Oh and by the way the growth of the craft segment is slowing.

    Oh and by the way all the big brewers are foreign companies now, so no tax break for those guys.

    Jeff, you bleeding heart liberal, do you think beer is a net negative to society?

  6. This is actually a great time to talk taxes -- when it's not supercharged by the Ben Cannons of the world.

    More from the Beer Institute:

    What a Beer Tax Rollback WILL and WON'T Do

    * A beer tax roll back will give beer drinkers, typically working Americans with modest incomes, a break. The total tax burden for beer drinkers is nearly 70% higher that it is on all other U.S. purchases.

    * A beer tax roll back will recognize that excise taxes continue to be an inefficient way to raise revenue.

    * A beer tax roll back will help protect U.S jobs. After the 1991 tax hike, over 50,000 U.S. jobs were lost.

    * A beer tax roll back will provide relief to millions of U.S. adults who enjoy beer responsibly. Those who want to use the tax code to discourage abusive drinking only punish those who drink in moderation. It is like giving every driver a speeding ticket because some drivers don't obey the law.

    * A beer tax roll back won't lead to increased abuse alcohol or illegal drinking. Despite activists' claims, many of the most recent studies find no relationship between alcohol taxes and abuse. People can't be taxed into behaving responsibly.

    * A beer tax roll back won't cause America's adult working men and women to suddenly start drinking irresponsibly simply because their beverage of choice becomes a little more affordable.

    * A beer tax roll back won't effect declining underage drinking trends. Teen's decisions about illegal drinking aren't based on the price of beer, but by the example set by parents and peers.

    I love the speeding ticket analogy!