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Taxation On Fermentation

No, this isn’t a rant against proposed beer taxes. It’s an examination of the “whys” and the “hows” behind them.
by Eddie Glick

I like my beer like my women: pale, strong, full-bodied, and extremely bitter.
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“Taxation has always been the bane of brewers.”

That’s what New Glarus Brewmaster Dan Carey told me when I asked him about the proposed beer tax in Wisconsin, one of a multitude of states in the Union that is mulling a significant hike in the beer tax as a way to help combat horrific budgetary woes. And Dan has quite a bit of history to back up his argument. Governing bodies have had their sticky fingers in the brewpot every since, well, beer has been brewed. One of the oldest known laws set down by Hammurabi nigh onto four thousand years ago was about the production of beer. And take the most famous beer law of them all, the Reinheitsgebot, or German Purity Law, which was created as a taxation law. By forcing brewers to use only malt, water, and hops, the government could tax these raw materials without actually taxing the beer, which wouldn’t be popular among the people.

And here we are in 2009, and the government still has to get its cut of the green stuff, especially when it comes to beer. But I’ll spare our readers and refrain from going off on a rant about the fiscal ineptitudes of government or the folly of “spend-it-or-lose-it” budget policies or the flimsy promises of politicians not to touch funds earmarked for other purposes.

And, believe it or not, I’m not going to use this space to weigh in on the argument about whether new beer taxes are good or bad. This being a beer site and all, you’d think I’d be hoppin’ to spout off my opinion on the should-or-shouldn’t topic, but I don’t see the point. The argument has been pounded into the ground in blogs and columns, and frankly I don’t think I have the expertise and knowledge to contribute anything more to the argument. This isn’t TaxDorks.com, after all.

Besides, arguing over whether to raise beer taxes or not are the “whats” and the “wills” of the broader topic. What intrigues me about the entire issue are the “hows” and the “whys.”

Firstly, how will these taxes be applied, and how will they affect the craft beer industry? To cut to the chase, their affect will in no way be good for the beer industry as a whole and the craft beer industry in particular, which is why every brewer on the planet, big and small, has vehemently opposed any increase. But I see it as far more detrimental to smaller brewers because of the slimmer margins they operate under. Larger breweries could spread the cost of the tax or any of the decreased revenues across different parts of their budget: advertising, employee benefits, distribution, sales. But if you’re a craft brewer with no ad budget, one employee, and you self-distribute to a set number of customers, well, you either see that cost come directly out of your profits or pass it on to the consumer. Hell, some economists think MillerCoors’ margins are even too small to handle proposed tax increases.

By taxing at the point of production, the government is basically taking money from the brewers’ and consumers’ pockets and giving it to the distributors and retailers.

And how will these new taxes be applied? Some states are talking about imposing these taxes at the point of production. In other words, having the brewer pay the tax before it enters the distribution and retail chain. The problem with this is that historically, both distributors and retailers have tacked their own price bump onto product after a tax increase, on average by a factor of two. (Point #4, “Beer taxes are marked up to the consumer, by about twofold.”) By taxing at the point of production, the government is basically taking money from the brewers’ and consumers’ pockets and giving it to the distributors and retailers. The best part of it all? We as the consumers have no clue how much of the tax we’re paying. When the tax is applied at the point of sale, you and I can look right at the receipt and see what taxes were applied. At the point of production, we have no fucking clue how much each party jacked up the price. The brewer may not have even passed on the tax increase to the consumer, but the distributor and retailer could still do so. It’s hard not to look at that as a direct attack on the brewing industry.

Add that to the tiny margins the vast majority of craft breweries operate under and the legally questionable relationship large breweries like AB InBev have with distributors, and it makes a point-of-production tax increase a bullseye painted over the hearts of craft brewers.

Some of the rhetoric coming from legislators championing beer tax increases has started to take on a genuine neo-Prohibitionist fervor.

Which brings us to the “whys” of a beer tax increase. On the surface it’s to help balance state budgets pummeled by wiped-out income taxes and cratering property values. But when it comes to politics, the real reasons can get blurred behind populist arguments and demagoguery. Consider how deeply distributors are in bed with state governments—that makes the reasoning behind the point-of-production tax increases a little more sinister, doesn’t it? Even better, some of the rhetoric coming from legislators championing beer tax increases has started to take on a genuine neo-Prohibitionist fervor. Take a gander at this statement by Wisconsin State Representative Terese Berceau that appeared in a guest column she wrote for The Capital Times on June 10, 2009:

“It is those who consume beer who disproportionately create the problems of auto accidents and crime; why should the public bear all the cost of this private behavior?”

What an unbelievably classist and classless statement. To translate in non-politically correct terms: “All you beer-swilling, lower-class peons are the cause of the bulk of society’s problems, so you deserve to pay more than your betters.” Let me take a moment, as a beer-swilling, lower-class peon who pays his taxes, has never committed a felony, and has donated both time and money to local and global charities, to say to Representative Berceau: fuck you.

So, in short, should beer taxes across the country be raised? I have no clue. Ask an economist. But if they do get raised, they should be done right, and for the right reasons. As beer dorks, we need to communicate with, read up on, and listen to our elected representatives, and really understand what their motives are beyond the “we need money” argument. There’s a chance that there’s more to their motives than simple fiscal concerns. And if you find that hard to believe, you definitely don’t understand politics.