Bipartisan efforts are often more the exception than the norm in Washington, D.C., but the politics of federal beer taxes is one case where party affiliation and ideology are irrelevant.
Underway in Washington, D.C. is an effort led by Rep. Patrick McHenry (R-N.C.) and Sen. Ben Cardin (D-Md.), two members who have very little in common otherwise, to reform how small and large breweries are taxed. The common thread is both members represent areas where small breweries offer a significant amount of jobs. Indeed, the business of local brewing is one industry that has really taken off over the past decade.
All this comes at a time when the beer market is slowly changing. No longer is there the monopoly that existed with the large companies that brew the household names like Budweiser, Miller and Coors — although they still dominate.
Over time, small companies have been chipping away, earning market share. According to data from the Brewers Association, a Boulder, Colorado-based trade association, small “craft” breweries make up 11 percent of the total domestic beer sales and are on the verge of eclipsing the amount of sales of imported beers in the United States.
As a coalition, smaller breweries are beginning to have enough political clout to begin to take on the big boys in Washington, D.C. in lobbying for lower taxation on their products — an effort being championed by McHenry and others in the so-called Small Brewers Caucus on Capitol Hill. It has been something of a struggle for smaller breweries to win that influence. Alabama’s “Free the Hops” movement from the last decade is emblematic of the David-versus-Goliath struggle small breweries have faced in taking on “Big Beer.”
Anheuser-Busch and other large wholesalers in the state opposed lifting regulations on beers brewed in Alabama. That fight in Montgomery introduced the nation to State Rep. Alvin Holmes (D-Montgomery), a member who sided with the large beer manufacturers. In comments he made that went viral on YouTube, Holmes questioned why there was a need for anything beyond the status quo.
“What’s wrong with the beer we got?” he said in a floor speech in 2008. “I mean the beer we got drinks pretty good don’t it? I ain’t ever heard nobody complain about the beer we have.”
Eventually Holmes and other allies of Big Beer lost out to the grassroots “Free the Hops” movement and limits were raised on the alcohol by volume restrictions, which opened the door for the 24 craft breweries begun in Alabama since. This industry is now undergoing an evolution similar to the news media, which was once dominated by a handful of large companies like ABC, NBC, CBS and The New York Times. Cable news and the Internet came along and undermined that monopoly.
That’s the same progression of the beer business. The power is being transferred to the consumers, who are being given more choices, forcing the industry to adapt by offering more or better products. Now, part of this new competition is underway in Washington, D.C. is how to change the tax code regarding breweries.
The current system is a relic of the “luxury tax” of the early 1990s signed into law by then-President George H.W. Bush that taxed “luxury” goods including yachts, some cars, private airplanes and furs and jewelry valued over $10,000. Most of those taxes have been repealed, but those on beer have remained.
In that system, breweries that produce less than 2 million barrels of beer each year pay $7 per barrel on their first 60,000 barrels and then for each barrel beyond that 60,000, they pay $18.
The Small BREW Act, legislation initially proposed two years ago, would change the taxation structure for breweries producing 6 million barrels or less. The first 60,000 barrels would be taxed at $3.50 a barrel. For every barrel beyond 60,000 and up to 2 million, the tax would go up to $16. Anything beyond that up to 6 million barrels, breweries would be a levied a tax of $18 per barrel.
There is a competing version of this legislation pushed for by the big breweries called the Fair BEER Act, which according to proponents would provide tax relief not just for small brewers, but for all brewers. It would eliminate the federal tax for brewers who produce up to 7,143 barrels. Beyond 7,143 barrels and up to 60,000 barrels, the tax would be $3.50 a barrel. Beyond 60,000 and up to 2 million, the tax would be $16 per barrel, then after 2 million barrels, that tax goes to $18 per barrel.
The wrinkle, however, is the Fair BEER Act would extend these tax rates to producers of imported beer and the reduction of taxes on these imported products is a step too far for some legislators. That, in their view, makes it less about the domestic economy.
The rationalization promoting a bill that benefits smaller breweries, which includes the strange bedfellows of McHenry and Cardin, is that the money in federal tax revenue lost, estimated to be $700 million over 10 years, would be made up in job growth and business expansion.
Whether it is beer or any other sort of business, it’s an economic philosophy that has been touted by conservatives for years. The lesson here is if you reduce the regulatory and tax burden on business, it unleashes the power of the free market and the overall economy benefits.
It just takes a product like beer for people to realize it.