D. Dowd Muska


Booze Taxes: End Them, Don’t ‘Mend’ Them

March 12, 2015

The hispterfication of America’s alcohol industry proliferates apace.

Craft breweries, micro-distilleries, local wineries -- it’s getting difficult for a thick-bearded, bicycle-pedaling, thrift-store enthusiast to make up his mind. But whatever adult beverage he picks, he’s certain to be hit with a hefty tax bill.

At the federal level, the levy on spirits is $13.50 per gallon. Wine -- alcohol content not more than 14 percent -- is gouged at a rate of $1.07 per gallon, and beer brewed by large companies gets smacked for $18.00 per barrel. Altogether, the three taxes don’t do much for revenue-generation. They fail to cover a single percentage point of Washington’s annual expenditures.

In 1990, George H.W. Bush’s disastrous “deficit-reduction” deal doubled the national beer tax, and for a quarter of a century, despite lengthy lists of co-sponsors, legislation to offer Joe Sixpack a break has been defeated. (Mothers Against Drunk Driving is an intransigent foe.) But recently, the upsurge in small-scale suds vendors has altered the debate. In the early 1870s, the Republic had more than 4,000 breweries. The number plunged to a record low of 89 in 1978, followed by a steady-but-glacial comeback. Then, a boom -- between 1995 and 2013, the number of breweries more than tripled.

Congressmen are adept at spotting budding voting blocks, so a bipartisan coalition is pushing House and Senate versions of the “Small Brewer Reinvestment and Expanding Workforce Act.” As implied by its name, the bill’s relief is targeted, not general.

Breweries that sell under 2 million barrels a year currently pay a tax of $7.00 on their first 60,000 barrels. Above the threshold, the full, $18.00 levy kicks in. Big boys in the brewski biz -- SABMiller, Anheuser-Busch InBev -- pay the top rate on every barrel. But since the largest beer firms are multinational corporations, there’s no way they can hope for help. The Small BREW Act is an enhancement of the perk bestowed on their humbler competitors.

The bill, as described by Sen. Ben Cardin (D-MD) and Susan Collins (R-ME), sets the tax at “$3.50 per barrel on the first 60,000 barrels. For production between 60,001 and 2 million barrels, the rate would be $16.00 per barrel. Then, the rate would be $18.00 per barrel. Breweries with annual production of 6 million or fewer barrels would qualify for these new tax rates.” A rival bill would exempt the tiniest brewers entirely, while imposing a schedule similar to the Small BREW Act’s for sales of more than 60,000 barrels.

Meanwhile, in the states, the goal of broad, deep, and uniform reductions in alcohol taxation is similarly elusive. As Americans for Tax Reform’s Grover Norquist and Patrick Gleason wrote in a recent piece for Reuters, “In addition to the federal excise tax, all 50 states apply punitive taxes on beer. Tennessee, for example, levies the highest excise tax on beer at $1.17 a gallon. Alaska comes in second, with a rate of $1.07 a gallon.” Wine taxes in Florida, Alaska, Hawaii, Oklahoma, and South Dakotas far surpass the federal take. For hard liquor, Washington, Oregon, Virginia, Alabama, and Alaska are the worst offenders.

With a new fiscal year starting in July, some governors and legislators are eyeing drinkers to plug budget gaps. In January, Kansas’s chief executive -- a Republican -- proposed a 50 percent increase in the state’s liquor tax. (For now, at least, the hike appears to be dead.) Other elected officials are doing the opposite. Wyoming’s beer tax is an almost comically low 62¢ per barrel, and hasn’t been raised since its adoption in 1933. Nonetheless, it was decisively exterminated by the Cowboy State’s House of Representatives this session. The repeal’s sponsor charged that the tax was “antiquated and has outworn its usefulness,” but when the bill reached the Senate, a GOP committee chairman let it die.

To Nanny Statists, heavily taxing spirits, wine, and beer is a scared obligation. (In 2011, The Washington Post sniffed that with its alcohol taxes so low, Maryland “might as well change its official nickname from the Free State to the Cheap Drunk State.”) But the health benefits of moderate drinking, combined with the inability of higher levies to deter hardcore alcoholics’ destructiveness, should spark serious doubt about the value of taxes on booze.

Out-of-wedlock births have a far greater “social cost” than drinking, but no one’s proposing a tax on illegitimacy. Champagne, lager, tequila, rum, hard cider, whiskey, sake, ale, moonshine, gin, sangria, vodka, brandy -- free them all. Don’t tinker with alcohol taxes. Abolish them.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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