A Guide to the Alcohol Tax Cut

In 1791, Americans protested what they perceived to be the first offense by their new government: the whiskey tax. Farmers often used surplus crop to distill the liquor; In true patriotic fashion, these freedom-filled citizens organized angry mobs, forcing George Washington and a militia to quell the uprising.

While taxes are the last thing most people want to contemplate while sipping their cocktail, alcohol has been intrinsically linked to our tax-code since that Whiskey Rebellion. The GOP’s sweeping tax bill — described as once-in-a-generation legislation — is no exception.

Nestled within the law’s language, there is a massive tax cut for alcohol producers, reportedly as much as 16 percent. The Craft Beverage Modernization and Tax Reform Act (CBMTRA) is an amendment, which originated in the Senate’s draft, which passed within the overall tax bill.

To be clear, this is not the “vice” tax you pay with a six-pack at the store. It is a cut for the producers of alcohol — whether these operations lower prices because of this cut is their individual prerogative.

Regardless, it will have a major impact on those who are making booze, those who are distributing it, those who are selling it to consumers, and those who are drinking it. In other words, this tax cut is large enough — and so unprecedented — that it has the power to reshape the industry, and potentially, the socioeconomic environment around alcohol. Everyone should be paying attention.

Here are some highlights before I delve into the nitty gritty:

  • The Craft Modernization and Tax Reform Act is a bipartisan effort to decrease the taxes on both small and large alcohol producers
  • This marks a significant shift in taxation spurred by the growth of smaller communities
  • But there’s a catch: the benefits expire in 2019, unless extended by law, and many are worried about a public health catastrophe


Why is Congress changing a decades-long pattern of increasing alcohol-related taxes?

Congress has increased taxes on alcohol since post-Prohibition, the last change in 1991. The reasons behind these moves are numerous — public health is a big one, which we’ll get too later — but there’s one big reason: money. According to a report by the Distilled Spirits Council of the US, the US government received 29.8 billion dollars in 2013 from alcohol-related tax.  

There’s a tremendous amount of debate about where the GOP’s tax bill’s cuts will go, with arguments divided almost exclusively along party lines. But in the case of the CBMTRA, the elephants and donkeys seem to agree on this cut: But why?

Let’s briefly take juggernauts like MillerCoors out of the equation. They are absolutely benefiting from this cut — which they thoroughly lobbied for — but the root of the matter lies with smaller operations across the country. The very same operations that are spurring economic growth, and have proven to supply a cultural boost to a variety of communities.

North Carolina is a perfect example. Director of the North Carolina Craft Brewers Guild Margo Metzger notes to Curbed how breweries fight the “struggling small town” phenomenon

“I’ve spent my whole life here, and suddenly, you see breweries in forgotten Eastern North Carolina towns… It gives people a public house and a reason to want to live there. But more importantly, it makes people feel like they’re in a relevant place … It’s a powerful, kickstarting force, a spark that I’ve seen time and again in this state.”

Back in November, Republican Ohio senator Rob Portman led the charge to make the CBMTRA a permanent reality, citing his state’s blossoming brewing scene as incentive. Democratic senator Ron Wyden also worked on the bill — he, of course, reigns from Oregon, where cities like Portland have become drinking destinations.

While their “small business” rhetoric might sound like the familiar, empty drawl of politicians, the bill’s language speaks to the contrary.


What’s in the bill and why is the alcohol industry so happy?

Politico details how liquor makers will see a huge cut: “[Liquor makers] currently pay a $13.50 tax per “proof gallon,” which is defined by the beverage alcohol content. Under the legislation, that would fall to $2.70 for the first 100,000 gallons produced.”

Wine experiences a smaller but still significant cut, but beer perhaps experiences the most interesting change. Back to Politico:

“Beer makers now generally pay $18 per barrel, which translates to about 30 cents per six pack, though small producers pay $7 on their first 60,000 barrels. Beginning Jan. 1, brewers will pay $3.50 on the first 60,000 barrels, and $16 after that, up to 6 million barrels.”

What this tiered system represents is an apparent benefit to giants like MillerCoors and smaller breweries. In a statement, Brewers Association president Bob Pease described their organization’s prolonged lobbying for such a change and thanked the legislators responsible.

The Beer Institute’s Jim McGreevy was similarly thrilled, describing how the bill will provide major stimulus: “Federal excise tax relief for brewers and importers could create an additional $320 million in annual economic growth in an industry that today supports more than 2.2 million American jobs and generates more than $350 billion in economic activity.”

In addition to beer-makers, Distilled Spirits Council of the United States, Wine America and the Wine Institute also support the measure. For many of these organizations, the tax cut is a welcome pay-off for the over 22 million dollars spent yearly for lobbying (Perhaps unsurprisingly, Anheuser-Busch InBev leads the alcohol industry pack with five million per year).


Okay, but what’s the catch?

There are several caveats. The first is that these benefits have a time-limit: 2019. Placing a delay or expiration date on legislation is common, especially for such a massive economic move. But if the measure is successful in boosting the economy, Congress — regardless of its party make-up at the time — may be compelled to extend the measures.

There is also an essential question of public health. Many believe that more and cheaper alcohol will contribute to more drunk-driving incidents, alcohol-related health problems, risky sexual behavior, and by extension, worse crime and poverty.

Adam Looney, an analyst with Brookings, estimated there will be 1,550 more alcohol-related deaths a year because of the legislation. His results come from extensive research on how previous tax-cuts have decreased alcohol-related incidents, in addition to a variety of factors you can read about here and here.

Looney also describes how the bill’s language will still benefit larger companies more than small ones — if just because larger companies have more money to tax, and thereby will save much more.

German Lopez cites this study and others in his piece for Vox, where he vehemently argues the alcohol tax should be increased for the sake of public health. For example, Lopez cites a 2010 review of existing research in the American Journal of Public Health, which predicts that doubling the alcohol tax would decrease alcohol-related mortality by a whopping 35 percent.

These statistics do not only speak to raising alcohol’s prices on shelves, thereby deterring customers from purchasing as much (there is debate as to whether or not the tax cut would even lead to lower prices for consumers). These numbers describe how much money the government could make from alcohol, funds that could be allocated to public health initiatives, as well as a multitude of other things. This is a common criticism of the tax bill on a whole, that its many cuts will leave the government without trillions of dollars and will grow the deficit.

Ultimately this legislation, tucked into the tax bill without much public reckoning, could reshape not only our economy, but the social and political landscape as well. Quartz dubbed the effort a “social experiment,” an example of senators predicting human behavior and gambling it will all turn out okay. Whether you approve of this wager on the American people, the cuts are coming.

We will continue to watch this bill and how it specifically affects the restaurant and bar industry. Check back in for more information as this all unfolds. 



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