Thoughts Leading Into Friday’s Rally – from Dick Cantwell

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Just received this from Dick Cantwell, Head Brewer and Founder at Elysian Brewing. I won’t try to summarize his points. They deserve to be heard in his own words. I’ll just say that we are all in this fight together. Take a deep breath and read the following. Take it to heart.

From Dick Cantwell:

The recent triad of budgets submitted by Washington’s two legislative bodies and the Governor’s office substantively agree on only one thing: times are tough all over. The proposed extension of the rapacious tax imposed three years ago on the biggest brewers selling beer in our state–passed without fanfare or public awareness in the closing instants of the legislative session–has further divided both opinion and intent. The most draconian proposal–the Governor’s–would keep the “temporary” tax in place in perpetuity for the large brewers, while rewarding the hard work and jobs-creation undertaken by our state’s smallest brewers with an increase to four and a quarter times what they are paying now. The Governor, incidentally, claims to value Washington beer culture and its proponents at the same time he’s attempting to influence the passage of legislation that would almost certainly put many of them out of business–the destruction of the village, I suppose, through liberation–of funds.

Next on the Tough Love scale is the budget offered by the House, which would merely double the rate of tax paid by small Washington brewers, already among the country’s most heavily taxed. The Senate, nominally controlled by the Republicans, allows the lapse of the temporary tax without changing the rate of tax on small brewers.

You can imagine the amount of rumor, intimation, innuendo and out-and-out statement (sort of) that the mix of big brewers, small brewers, Democrats, Republicans, committee chairs, lobbyists, advocates and detractors has engendered as the whole drama has unrolled. One might even suspect the legislators themselves of having fostered a mood of mistrust and divisiveness where the large and small brewers are concerned. And not all reactions have been as cool and considered as they might have been. Feeling themselves to be fighting for their lives, some among the small brewers have hung their hopes exclusively on the maintenance of the differential between what they and the big brewers have traditionally paid, while seeming to care less about the fortunes of their larger associates. Rumors abound regarding machinations by the big brewers–including the threat of a referendum aimed at eliminating the tax entirely–rumors roundly denied by representatives of both Anheuser-Busch InBev and SAB Miller-Coors.

But a funny thing has happened in the course of all this. The large and small brewers selling beer in Washington state have united in opposition to a tax which would collectively vault them into a stratosphere of excise exaction. Not only that, allied trade organizations such as the Beer Institute, the Washington Restaurant Association and the Hop Growers Association have all lined up, too. Whatever the competitive realities of the marketplace, in fact, brewers of all sizes, from nano to mega, streetcorner to multi-national, stand beside each other in the unanimous crying of foul where the various proposed tax hikes are concerned. If anything, the efforts by our government bodies and offices to divide and tax has brought brewers at every level closer together.

These government entities will claim the issue is funding education, that somehow the fate of our schools is tied up in the rate of tax demanded of brewers of beer. To hear them talk, it’s an either-or situation: you can fund education or you can allow brewers to continue doing what they do–to my mind producing top-quality local products that benefit local economies, and creating jobs. Though obvious, let it be said: to be for beer and small brewers is not to be against education. To suggest an anti-schools attitude on the part of brewers rightfully horrified in the face of an industry-threatening tax is to willfully confuse the issue. Where’s the money to come from? I’m not a legislator. What I do is make beer and hire my neighbors, pay taxes and vote, appropriate to the worthiness of those creating public policy and crafting budgets.

This Friday a rally has been called for noon in Olympia to call attention to the tax issues facing all brewers. Organized both by small brewers and the large body of supporting beer enthusiasts, attempts will be made to gain the ears of legislators desperate to resolve things but in my experience generally these days not answering calls. The big brewers as well will be on hand. The last time this issue arose, a decision was made without the input of the public–or business community–concerned. This time at least we’ve made sure they know where we stand. Let’s make sure we stand together, not in the factions that make it easier for budgeteers, legislators, and executives to pick us off one by one, tier by tier. This isn’t an issue of big versus small brewers; it’s one of political opportunism, of sacrificing what it’s taken us all thirty years to accomplish as small brewers at the altar of trumped-up righteousness and obfuscation. The story we have to tell is a strong one, of creativity, entrepreneurship, of collegiality and community-building. Let’s concentrate on what makes us great and why we should keep on doing what we do. The tax proposals before the legislature right now promise to make that extremely difficult.

Dick Cantwell

Head Brewer and Co-founder

Elysian Brewing Co.

Seattle

 

5 Responses to Thoughts Leading Into Friday’s Rally – from Dick Cantwell
  1. Teri Fahrendorf
    April 18, 2013 | 3:37 pm

    Thank you Dick! Well stated and inspirational, as usual. A tax on beer effects everybody along the supply chain from barley and hop farmers to ingredient suppliers to breweries to retailers to consumers. We need to keep the first domino from tipping. It will take all of us.

  2. Ean Forgette
    April 19, 2013 | 8:04 am

    Dick – thanks for the great article and points. As a brewer and father of a 7 year old, I understand that taxes and levies are need to pay for the everything from roads to education. However completely disagree with the legislatures thoughts and propaganda that only one industry or organized group “can” pay for those taxes.
    - One point that the state hasn’t considered is that we as brewers are often asked 2-3 times per month by various very local non-profits – which includes school organizations- to donate product or experiences for events and boosters ( small tasting events, growlers, glassware, or maybe a special tour, etc). We donate but not nearly to the value of the proposed tax increase. Currently, as a brewer we will make personal or business choices to donate or not based on preference in the same way that an individual would choose – perhaps local school youth baseball and cancer survivors vs football and IT industry meet-ups. To conclude here, as a brewer, I won’t be able to afford that leisure as often. If the new taxes are voted in, will I then reply to school organizations with tax awareness education or provide product for a booster, I/We haven’t decided yet.

    Ean – Owner and Brewer – Brickyard Brewing

  3. Aaron matson
    April 20, 2013 | 11:38 am

    I’ve said it once and ill probably say it a lot more:

    The Economic Repercussions of The New Beer Tax:

    My name is Aaron Matson, owner and operator of The Copper Hog Gastropub in Bellingham. I have a BA in Economics from EWU and obtained an MBA from WWU. I’m going to to discuss, from an economic standpoint, why this taxation on beer in Washington is a bad idea.

    First of all, let’s take a look at how the inflation begins “downstream” in the supply chain. The producers get taxed 50 cents per gallon of beer produced and there are roughly 15 1/2 gallons per keg. With the tax, that raises the price of the keg to the distributor to $7.75. Most of the time, we can assume that the producer is just taking that cost of it and passing it on to the wholesaler.

    I can explain why this assumption is a fair, if not completely accurate, one. In Bellingham, there are a few breweries. Chuckanut Brewery, brewing close to 1800 barrels a year, which translates into 55,800 gallons of beer. This would mean that Chuckanut would have to come up with $27,900 extra in that year of production to make up for the new tax. You can hire a full time employee at a pay rate of about $14 an hour for the same amount, and this just from a small local brewery. To put things into perspective, Pyramid made somewhere between 100,000 barrels and 150,000 barrels in 2010. Therefore, I think my original statement ……is a fair assumption.

    The next step is to look at the new price to the distributor, which has risen about $7.75 per keg. Since distributors tend to work on a margin of 30%, this would mean that the wholesale price has gone up by $2.25, bringing it to $10.00. Again here is another assumption, but I find it is pretty standard practice, that they just don’t eat the cost because that cost ($7.75) does represent roughly 5% of the total wholesale price of the keg (I used $135 wholesale keg price some some are more and few are less). That is a big chunk of their margin so we can safely assume that they will carry it on just like a cost of goods bringing that keg to me, the retailer about $10 more.

    Now in this industry we tend to keep costs of good sold to 33% of the sale price. There are about 124 pints in each keg but we can assume about a 10% loss in that keg so there are more like 110 pints in a keg. Now lets look at that new increase in price from the distributor of $10. We can take the $10 and divide it by 110 pints meaning cost per pint when up 9 cents. Well 9 cents is 33% of 27 cents. Price to customer just went up 27 cents. Lets round that down to 25 cents for easy math and so in the bar we dont need to deal with small change. That is 25 cents increase to the customer and there are 8 pints in a gallon. So the state is going to collect 50 cents in tax but it will cost consumers $2. This is supply chain inflation. This will hurt demand which will drop our biggest source of income to the state SALES TAX. The only way this is averted is if beer is a really inelastic good. I would speculate that it is inelastic but not enough for it to matter.

    Now lets look at this states competitive advantage. We have a massive competitive advantage in the production of beer in this state. if we wanted it to we could make it a huge industry for this state…i mean lets be honest it is, but why? Well we have really good and an abundant supply of water. We also produce huge amounts of Hops and just north in canada is where a huge amount of barley comes from and it mostly malted in Vancouver, wa. Wyeast in as major yeast producer and they’re in oregon. We are in the center of all parts of beer. Why are we going to kill that competitive advantage by making harder for a business to work in our state?

    We have chosen in this state to have a sales tax and only a sales tax as a major stream of revenue for this state. In theory this should be an economic incentive for the state to help business in any way it can to increase sales to increase tax revenue for the state. Don’t get me wrong cut me and i bleed blue, i am not a conservative capitalist but i do understand incentives and this is a very poor incentive for big part of our states economy.

  4. Nick
    April 22, 2013 | 10:14 am

    No write up on how the rally went?

  5. Kendall Jones
    April 22, 2013 | 10:20 am

    Nick, patience please. I went from the rally to a yurt on the Washington coast for some much needed (and I think deserved) relief from the issue. Even then, I ended up on my iPhone way too much.

    There will be coverage.