In these harrowing political times, it’s nice to see some sort of consensus in Washington, DC. Any sign of agreement and compromise is welcome news. And that’s what we received today from the Brewers Association: a glimmer of hope that Congress can actually agree on something. The Craft Beverage Modernization and Tax Reform Act now has majority support in both houses of Congress.
The Brewers Association just announce that United States Senators Joni Ernst (R-IA) and Heidi Heitkamp (D-N.D.) became the 50th and 51st Senators to officially endorse the Craft Beverage Modernization and Tax Reform Act (S. 1562), which would drastically reduce the federal excise tax paid by the craft breweries we love.
The Craft Beverage Modernization and Tax Reform Act would restructure the federal excise tax paid by breweries, significantly reducing the excise tax paid by the craft breweries we love. Essentially, it cuts in half the amount of federal excise tax most craft breweries pay on the beer they produce, reducing the per-barrel rate from $7.00 to $3.50. More information about the Act can be found in the press release below.
The Act enjoys wide support on both sides of the aisle, but that is no guarantee that it will ever see the light of day. In other words, majority support means nothing if it never makes it to the floor for a vote. This Act is not exactly new and proposals to reduce the excise taxes for breweries have been bouncing around Congress for a few years now. The Washington Beer Blog has been reporting on this excise tax restructuring proposals, in its various forms, since 2010.
Pros and Cons
Proponents of the Act, which are easy to find in the craft beer industry, say that reducing the excise tax frees up money for them to reinvest in their businesses, allowing them to expand production and hire more employees.
It’s easy to understand why breweries would support the proposal. Yes, they can reinvest the savings in the business, but there’s also a basic, visceral human instinct to cheer for lower taxes. Any kind of savings is positive and helps the bottom line, which ultimately helps their business.
Opponents in the craft beer industry, which are harder to find, have a different and less obvious point of view. They say that the Craft Beverage Modernization and Tax Reform Act only provides real, measurable advantages for the larger craft breweries, further increasing the larger breweries’ advantages.
One brewery owner, who I will not name, explained it to me this way: “If it passes, I’d save about $3,500 a year; the bigger brewery down the street would save $100,000 a year. Sure, I could find a way to use $3,500, but $100,000 will just help them further kick my butt.”
That brewer owner laid out a scenario for me as an example. The Act would reduce the tax paid from $7 per barrel to $3.50 per barrel. Today, a brewery that produces 1,000 barrels per year pays $7,000 in excise tax. That would be reduced to $3,500. A brewery that produces 30,000 barrels per year currently pays $210,000 in taxes. That would be reduced to $105,000. The bigger brewery would save $105,000 per year and the smaller brewery would save $3,500.
As he put it, “$3,500 is what it costs me every time the dishwasher in the taproom breaks down, but with $110,000 they can buy more tanks, hire more sales people, upgrade their packaging system.”
To be honest, it never occurred to me that a brewery would oppose the Craft Beverage Modernization and Tax Reform Act, and it is not likely that those who do will make much noise about it. I only present that opinion here to be fair.
Here is the press release from the Brewers Association:
BOULDER, CO and WASHINGTON (September 26, 2016) – United States Senators Joni Ernst (R-IA) and Heidi Heitkamp (D-N.D.) became the 50th and 51st Senators to officially endorse the Craft Beverage Modernization and Tax Reform Act (S. 1562). This comprehensive and bipartisan bill enjoys wide support from the brewing industry and seeks to recalibrate the current federal excise tax structure for the nation’s brewers and beer importers and reform burdensome laws regulating America’s brewing industry.
“It’s been 40 years since excise tax has been reformed for American brewers. Now is the time for change,” said Bob Pease, President and CEO of the Brewers Association, the not-for-profit trade association dedicated to small and independent American brewers. “As we reach 51 co-sponsors in the Senate, the majority of both chambers of Congress have demonstrated their commitment to recalibrating the federal excise tax. Thanks to the Congressional champions who have worked across the aisle to support the brewers who are significantly contributing to culture and economy. When passed, this legislation would enable thousands of small businesses in every state and congressional district to continue to reinvest in their businesses and create jobs.”
The American beer industry supports 1.75 million jobs, contributes nearly $79 billion in wages and benefits each year to American families, and generates $253 billion for the U.S. economy.
“Beer lifts us up beyond partisanship, and I want to thank the broad coalition of members of Congress from across the country and from both sides of the aisle for supporting this commonsense legislation that will provide much-needed relief to America’s brewers and beer importers,” said Jim McGreevy, President and CEO of the Beer Institute, which represents brewers, beer importers and supply industries. “Now that a majority of both the House and the Senate support the legislation, we look forward to Congress taking up the bill and moving it to President Obama’s desk to become law.”
The Beer Institute and the Brewers Association are collaborating closely to pass the bill, which was introduced in the Senate by Senators Ron Wyden (D-OR) and Roy Blunt (R-MO). The House companion bill (H.R. 2903), introduced by Representatives Erik Paulsen (R-MN) and Ron Kind (D-WI), has received official support from 283 members of the House of Representatives. A complete list of Craft Beverage Modernization and Tax Reform Act co-sponsors in the Senate can be found here and the House here.
Specific provisions of the bill include:
· Reducing the federal excise tax to $3.50 per barrel on the first 60,000 barrels for domestic brewers producing fewer than 2 million barrels annually.
· Reducing the federal excise tax to $16 per barrel on the first 6 million barrels for all other brewers and all beer importers.
· Keeping the excise tax at the current $18 per barrel rate for over 6 million barrels.
· Reducing bonding and filing requirements for the 90% of American breweries that pay less than $50,000 per year in federal excise taxes.
· Expanding the list of ingredients that could be automatically included in beer without federal government approval.
· Allowing small, unaffiliated brewers the ability to collaborate on new beers, and giving them the flexibility to transfer beer between breweries without tax liability
The Hop Growers of America, the Can Manufacturers Institute, Glass Packaging Institute, the National Barley Growers Association, and the National Corn Growers Association have also endorsed the legislation.
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