Liquor Wholesalers’ Appalling Misuse of the Constitution

Liquor wholesalers’ attempts to rationalize federal alcohol legislation would appall James Madison, the father of the Constitution. Wholesalers claim their legislation will protect “states’ rights.” But their proposal would only serve their narrow special interest at the expense of individual freedom and prosperity — exactly the opposite of what the framers of the Constitution intended.

The National Beer Wholesalers Association — with the support of the Wine and Spirits Wholesalers of America — drafted this bill, which they plan to get members to introduce in the House and Senate this week or next. The timing precedes the NBWA annual legislative conference (March 27-30), during which their members will descend on Capitol Hill for annual lobbying visits. The wholesalers drafted and Rep. William Delahunt (D-Mass., retired) introduced a similar bill last year, which garnered more than 150 sponsors.

Unfortunately, many members have naively bought the wholesalers’ arguments that the bill protects states’ rights: “I want to preserve states’ rights to decide the appropriate regulation of alcohol within their borders,” Rep. Jason Chaffetz (R-UT) said in a press release last year about the legislation.

In reality, the aim of the bill is to protect anti-competitive state laws that support a three-tier system for alcohol distribution. Many states impose such “three-tier laws,” which generally require that alcohol producers sell only to wholesalers who then sell to retailers. Some states include exemptions for sales to consumers during winery visits, and some now allow direct–to-consumer shipping. About a dozen states don’t allow consumers to mail-order wine at all.

This is a nice setup if you are the wholesaler — i.e., a middleman — who gets a government-guaranteed right to profit from every liquor sale. But these laws are unfair to everyone else — consumers, producers, and retailers — who might benefit from different arrangements.

During the past decade, the wholesalers’ three-tier hegemony began to break as consumers increasingly attempted to mail-order wine from wineries in other states. Some state lawmakers — working at the behest of the wholesale lobby — banned out-of-state wine from being shipped directly into their states, while allowing their own wineries to ship out.

In the 2005 Granholm v Heald case, the Supreme Court ruled that such discriminatory laws violate the Constitution’s Commerce Clause, which grants Congress the power “to regulate commerce . . . among the several states.” Madison argued in favor of this enumerated federal power to facilitate the unfettered exchange of goods and services across state lines — a freedom critical to the nation’s prosperity.

At the time, conflicts between the states — then joined in a relatively loose alliance under the Articles of Confederation — jeopardized both freedom and security. The goal was to form a stronger, more stable union, in which individuals could prosper from both liberty and security. The only issue remaining was the extent of federal power vis-à-vis the states.

Madison explained in Federalist 45 that the powers reserved for the states would remain “numerous,” and enumerated federal powers would be “few and defined.” The commerce power — as embodied in the federal Commerce Clause — is among the few enumerated federal powers, but Madison did not think this one was all that controversial. He further commented: “The regulation of Commerce, it is true, is a new power; but that seems to be an addition which few oppose and from which no apprehensions are entertained.”