Young and Hungry

Are All Beer Taxes Bad?

The Senate Finance Committee is currently considering a proposal to increase the excise tax for alcoholic beverages — beer, wine, and liquor — as part of a health-care reform strategy. Craft beer producers are up in arms, and while I sympathize with their cause, the hubbub is in danger of becoming misconstrued.

The Brewers Association, a trade association for craft beer (and the folks behind Savor), is asking people to write their senators in opposition of this tax increase with its "Support Your Local Brewery" campaign. At the start of the campaign, the association sent a letter to the Senate Finance Committee detailing its opposition to the proposed plan and generally outlining craft brewers' importance to the economy.

Of its main points, the Brewers Association letter is absolutely right about one thing: taxing beverages based on their alcohol content is wrong. The Finance Committee plan would create "a uniform tax based on the alcohol content...imposed at a rate of $16 per proof gallon on all alcoholic beverages." (A "proof gallon" is a unit of measurement equal to one gallon of liquid at 100 proof, or 50% abv.)

This means that all alcohol — beer, wine, and liquor — would be taxed federally based on its abv. Given the enormous differences between the processes of beer, wine, and liquor production, this seems like an immature oversimplification. By focusing only on alcohol content, the proposal treats alcoholic beverages as a health ill (which they certainly are) but not as a craft food product (which they also are). Of proof-based taxing, the Brewers Association letter says:

If such a proposal becomes reality, there is no question that many small brewery businesses will suffer, some will close and consumers will face higher prices and diminished choice in the marketplace.

My problem with this is in the way I hear the Brewers Association's position simplified (or misconstrued) by other Web sites, bloggers, and brewers. Some copy-paste the letter unedited. Some omit the part about proof-based taxing — the most important part — and thereby simplify the issue as much as the Senate Finance Committee did. Some retreat into full-blown get-your-laws-off-my-beer NIMBYism.

At Lupulin Reunulin, a tasting event at RFD on May 29, Dogfish Head's Sam Calagione went on an (admittedly somewhat drunken) rant equating any increase in beer taxes with a catastrophic impact on craft brewers. This notion was met with nods of agreement from several other brewers at the event.

What these brewers were saying is that a climb in prices would depress beer sales. But any drinker can tell you beer prices have been climbing for two years, a result of shortages of hops, barley, and other cereal grains. Prices continue to climb. And yet, the Brewers Association notes, craft beer's market penetration continues to grow, even accelerate.

Proof-based taxing is undoubtedly rash and imprecise. Hopefully lawmakers will see this and refine the proposal before going forward. But if health care funding is a must, let's not dismiss excise taxes out of hand just yet. They might not even hurt beer sales. And the proposed increase? Only $3 per case.

My question to all of you is: Would paying another dollar per six-pack keep you from buying your favorite craft beer?

Photo by Darrow Montgomery

  • Michael

    I love craft beer and used to experiment with unfamiliar beers. "Hey, I've never had ... but I'll pick up a six-pack and give it a shot." Now that those six-packs are routinely $8.99 and up, I don't experiment. I buy what I know and even then lean toward what's cheap(er).

    Would another price increase keep me from buying my favorite? No. But it would keep me from being loyal to that favorite beer. And it would keep me from buying it very often (not because I can't afford it, but because I think it's too expensive compared to other beverages).

  • Steve Skojec

    I already have a hard time ponying up. Like Michael said above, the current cost makes experimentation a costly gamble.

    And his second paragraph sums up my position entirely, except the "can't afford it" part - because honestly, I have a tight budget for this sort of thing, and I already push the envelope by buying the craft stuff.

    I also brew at home, and this kind of law makes that sort of activity a LOT more appealing.

  • miked at dcbeer

    hmm, i wouldn't say i pasted it unedited... merely linked to it.

    I think this $3 a case might be an over simplification as well. The Baltimore Sun Post doesn't give a source for that figure and I assume that some bigger beers like those from Dogfish Head will be experience a higher markup. Why? The main reason the craft industry is mad about this. Craft beer is higher in alcohol than the big industrial brewery beers. Taxing based on alcohol means favoring the already established beer companies and hurting this nascent craft industry. Taxing success and innovation in favor of industrial mega corporations who have long encouraged unhealthy drinking habits in order to fund healthcare seems like the wrong move to me.

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  • alex

    I agree with miked that taxing by alcohol affects the incumbents, but disagree with his handwringing over the amount of the tax per case. This is a very simple thing to calculate.

    If you have a 5% beer, you need 10 gallons of the beer to reach 1 proof gallon that is taxed at $16.

    So with 128 oz/gallon, 1280oz of beer has $16 of additional taxes imposed on it. There are about 107 beers in 1280 oz, which comes out to 15 cents per beer, or $0.90 per six pack.

    Most craft beer is much more than 5%, sometimes two or three times that amount, so for a 10% sixer you're looking at an increase of $1.80, and for a 15% six pack that's an increase of $2.70.

    I think alcohol should be taxed at a higher rate than it is. Alcohol is a social ill. It has negative externalities associated with it that wouldn't occur as much if beer and booze in general were more expensive. I think that "category" based taxes are better than ABV based taxes, beer should have the same per unit tax, wine same per unit tax, and liqoure should have the same per unit tax.

    Honestly, if a $1 price increase in a six pack means that you can no longer afford it, then you probably shouldn't be spending your money on alcohol at all.

  • miked

    thanks for doing the math alex. i dont think alcohol is a social ill though. but leaving it up to the individual means different types of uses of the product. im of the philosophy that its not the government's place to try to control people's behaviors.

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  • alex

    The government isn't trying to control your behavior in vacuum. It's not saying drinking is bad by itself. It is saying that there are costs associated with drinking that like it or not occur and if you want alcohol to be legal than everyone who drinks should help bear them.

  • alex

    Also healthcare being tied to having a job is the worst fucking idea ever. Anything that can remove that burden on employers is good.

    If the price of beer doubling or tripling meant we got socialized medicine, I would be completely happy with it.

  • Jim Dorsch

    The proof-based tax is what the beer industry calls 'equivalence'. This is something the spirits lobby has endorsed for a long time, as a way of gaining an advantage over beer and wine. I believe the spirits people (DISCUS) are against this latest proposed increase; I'm not sure why.

    The last time the federal beer tax was raised was 1991 IIRC. It increased from $7 to $18/bbl (31 gal, slightly less than 14 cases). Craft brewers (up to a certain size; I won't elaborate here) generally pay the $7 rate as part of a scheme to cut them some slack and make their beer competitive in the marketplace. The 1991 increase was a huge setback to the industry, and it's the only one of the 'luxury' tax increases of that time to never be dialed back. Granted, the industry was much different then, with craft being nowhere near as established as it is today.

    A typical case of craft or import beer might cost a retailer $25-30, so a $3 increase amounts to 10 percent or more. That's significant, and while craft has still been growing even with significant price hikes, consumers to have their limits.

    People like to think of beer (and other alcohol) as a health menace, but research shows that moderate drinking can be healthful. The beer lobby likes to portray beer as a healthier beverage than spirits, but that depends on the individual's drinking patterns. Clearly, it's possible to abuse any alcoholic beverage (as well as potato chips, donuts, ...)

    Today we see drivers doing dangerous things while talking on cell phones. Perhaps we should slap a punitive tax on cell phones.

  • Greg Kitsock

    Let's remember that the wholesaler and retailer are going to take their cut. According to one estimate I've heard, every additional $1 in taxes could wind up costing the consumer an extra $1.68. Add to this the threat of increased taxation at the state level, and I think there is a real possibility that many breweries would close and many more Americans would lose their jobs.
    Proponents of this sharply increased tax on alcohol argue that it would bring in $60 billion over the next ten years. But that's only about 5% of the estimated $1 to 1.5 trillion price tag of President Obama's health care initiative.

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