The American beverage industry is pitching what it hopes is a popular message to would-be tax reformers on Capitol Hill: Keep happy hour affordable.
For the beer and cider industries — and yes, there are separate lobbyists for cider — a tax overhaul might finally be the vehicle to address some of their gripes with the Tax Code.
Lobbyists for the wine and liquor sectors, meanwhile, worry that Democrats will try to boost excise taxes to raise revenue if the House Ways and Means and Senate Finance committees move forward with tax reform.
Leaders of both panels pledge to at least begin a debate on the nation’s convoluted Tax Code with legislative proposals in the coming months, putting every industry with a tax break to save or one to beef up on defense.
“The last thing we need is another hit on our industry as the economy is getting its footing after the past few years,” said John Bodnovich, the executive director of American Beverage Licensees, which advocates for the entire industry.
Beer interests stepped up lobbying in 2012 amid a slump in overall Washington lobbying, according to the nonpartisan Center for Responsive Politics. The Beer Institute of major brewers spent $1.3 million lobbying in 2012, up from $920,000 in 2011, according to CRP. It is on track to spend more this year.
The craft beer-focused Brewers Association also boosted spending in 2012 from the prior year to $354,000 to make its case to lawmakers.
Brewers and other alcohol interests make a local economic case in their bid for lower taxes: Trade groups point to jobs in nearly every congressional district linked to the growth of brewers, wholesalers and distributors.
Their fear that revenue-seeking lawmakers would eye alcohol as a potential pool of money is not without precedent.
In 1991, Congress approved a series of luxury taxes for yachts, private airplanes and beer, doubling the excise tax to $18 per barrel after the first 60,000 barrels.
These taxes were a vestige of a decades-older levy that was used to pay off Civil War debts.
Lobbyists won repeal of each of the other luxury taxes in the years that followed, but the steeper beer taxes remained.
By one estimate, the beer industry alone supports more than 1 million jobs and nearly $100 billion in economic activity, according to a forthcoming paper by libertarian think tank the Competitive Enterprise Institute.
Still, public health advocates say so-called sin taxes were enacted for a reason — to discourage risky behavior.
The Center for Science in the Public Interest, for example, backs raising taxes on beer, citing studies detailing the economic costs excessive alcohol use imposes, including lost productivity, traffic fatalities and alcohol-related health problems.
Some studies also find that raising alcohol prices reduces binge drinking.
Two rival bills would scale back the 1991 excise taxes — The Small Brewer Reinvestment and Expanding Workforce Act, or Small BREW Act, and the Brewers Excise and Economic Relief Act.
The first bill would slash the excise tax for the first 60,000 barrels produced by half to $3.50 per barrel, and establish a $16 per barrel rate on beer production from 60,000 barrels to 2 million barrels.
The Brewers Association, which represents members of the nascent craft beer scene such as locals DC Brau Brewing and Atlas Brew Works, argues the little guys need the boost more than the established beer giants.
“These small-business owners are going to put this money back into their business and give themselves the ability to make more beer,” said Bob Pease, the group’s chief operating officer. “These guys are not going to go buy a condo in Aruba. They are going to take that extra money, which would be modest, and put in a canning line … which will enable them to hire more people.”
The tax decrease in the bill, co-sponsored by Rep. Jim Gerlach (R-Pa.) and Sen. Ben Cardin (D-Md.), tops out if a brewery produces more than 6 million barrels.
The broader BEER Act, would cut taxes for all breweries, regardless of how many barrels the company produces annually. The excise tax would be reduced to $7 per barrel on the first 60,000 barrels.
“As it is today, as a national average, 40 percent of what you pay for beer is taxes. The BEER Act would do very well for every brewer in the nation in prevent[ing] an increase in that otherwise hidden and regressive beer tax,” the Beer Institute’s Vice President of Communications Chris Thorne said.
The group represents some of the nation’s largest brewers such as Anheuser-Busch and MillerCoors, as well as some growing small players like Dogfish Head Craft Brewed Ales.
The Beer Institute opposes the Small BREW Act, Thorne explained, because the tax cut would not be distributed among all brewers.
“If you’re going to have reform, it has to be comprehensive. It has to be fair to the entire industry,” he said.
The Competitive Enterprise Institute estimates the BEER Act would result in a loss of revenue to the government of $1.68 billion a year. The paper estimates the Small BREW Act would reduce tax revenue by $65 million a year.
For cider brewers, tax reform would be the first chance for a growing industry to shape a section of the Tax Code that advocates say has not kept pace with the explosive boom of their breweries.
“We’re trying to carve out some space so they can practice their craft,” said
Rep. Earl Blumenauer (D-Ore.).
Cider brewers are seeking a complex change in their tax regulation based on the concentration of alcohol in a batch. If a brewer miscalculates or intentionally adds more CO2 — a variable that easily fluctuates — a cider is classified as champagne under the Tax Code.
There is a near $3 difference between the tax on hard ciders and sparkling wines. Blumenauer and Sen. Chuck Schumer (D-N.Y.) introduced legislation in August to give brewers more flexibility in defining ciders.
“A larger tax reform vehicle, if it actually moves, would be the easiest way to make progress because there is almost no standalone legislation anymore,” Blumenauer said.
Not all sectors are seeking a big change in the Tax Code. The wine industry, for example, just wants to be left alone, Wine Institute President Robert Koch said.
“Given the current fiscal climate in Washington and the pressure to increase government revenue, we have been solely focused on ensuring that alcohol taxes are not increased and remain at their current levels,” Koch said.
The tax on wine ranges from $1.07 to $3.15 per gallon, depending on the alcohol content.