Is More Beer Production Only a Tax Cut Away?

WASHINGTON, Oct. 31 – Originally instituted as a way to pay back America’s debts from the Civil War, excise taxes on beer continue to dampen economic and employment growth in what should be one of the nation’s most dynamic industries more than 150 years later.

But, according to a new paper from the Competitive Enterprise Institute, two pieces of legislation designed to at least improve on the problem are advancing through Congress. The paper, “BEER and Small BREW Can Be Good For You; The Federal Excise Tax is Past Its Shelf Life and Should Be Reformed,” examines the growth potential in the industry and charts a course that could add tens of thousands to the payrolls of America’s increasingly diverse beer producers.

The paper, authored by Michelle Minton, a fellow in consumer studies at CEI, and David Scott, an attorney from Philadelphia, concludes both pieces of legislation – the BEER Act and the Small BREW Act – would improve the situation, although both would fall short of what should be the ultimate goal of eliminating the excise tax.

The authors say neither proposal is close to passage by Congress, but the industry would help its chances by coalescing behind one of the two. And they say the one should be the Brewers Excise and Economic Relief, or BEER, Act because it would help all producers, large and small; whereas the Small Brewer Reinvestment and Expanding Workforce, Or Small BREW Act, reduces rates only for those who produce 6 million or fewer cases per year. The authors cite research that shows neither measure would result in significantly higher consumption but both, particularly the BEER Act, would lead to expansion, purchases of equipment and hiring.

Part of the paper looks at the Victory Brewing Company in Pennsylvania, which, with 100,000 barrels per year and $18 million in revenue, ranks as the nation’s 26th largest craft brewery. Victory announced plans in 2012 to build a brewery that will triple production capacity, which it financed through a $33 million loan. At its current capacity, the BEER Act would result in savings of $622,500 and the Small BREW Act would deliver $290,000 in savings. The authors say savings under the BEER Act would cover most of the loan payment, and the Small BREW Act would cover a third of it, which would encourage further expansion.

“The best outcome, of course, would be total repeal of the tax,” said Minton. “But, as roughly half of the price of a beer is comprised of various federal and state taxes, any reduction in the level of taxation on the industry likely will accelerate its expansion. “

>> Read the full CEI study here.