Reviews, Commentary and Opinions on Midwest Craft Beer and Microbreweries

July 20, 2009

Beer Issues:

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.
Contact Eddie»
“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, 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.

What the fuck?!? No one has an opinion about this? You gotta be fucking kidding me...
posted by EddieGlick | July 20, 2009, 11:17 PM
I'm definitely against more taxes of any kind. With the economy the way it is presently, ANY extra taxes will take a toll on the public.

Even if you follow that bitch's (Theresa Berceau) logic, would the State of Wisconsin even benefit? My theory is if a person typically budgets say $20 and gets 5 beers out of it, great. The State get's their tax money and he goes home happy. Now say he goes out after the hike and spends his $20 but only gets 4 beers or less for it, how far ahead really is the State? We know he will go home thirsty and the pub he was at will lose a sale or two, as will the brewer and distributor, but will taxing a higher rate on less sales benefit the government?
posted by Ryan | July 21, 2009, 8:51 PM
I'm not an economist either, but I'd like to try to summarize a point Capital Brewery's CEO, Carl Nolen explained to me.

The tax proposed by Wisconsin Democrat Theresa Breceau was intended to be applied to the brewer. For example, if Capital brews a batch to be distributed in Indiana they are taxed for brewing it by Wisconsin, and taxed for selling distributing it by Indiana. Double taxation on the same product.

Now say Three Floyds distrubutes to Wisconsin. They are not taxed for brewing it since it was brewed in Indiana not Wisconsin, only for distributing it. Effectively half the taxes a Wisconsin brewer would pay to sell it in his back yard. This actually gives Wisconsin brewers a huge disadvantage even if they don't export.

Insane, poorly conceived and thought out liberal politics IMO. This is a classic case of pointing your finger at a group of people, judging and condemning them loudly enough until it gains favor. Unfortunately, as poor as this proposal is, the weak minded will be swayed and I doubt we have heard the end of this.
posted by Jug | July 22, 2009, 8:49 AM
I can understand raising the taxes--the money has to come from somewhere. But I think only the macro brewers should be subject to the tax. Micro brewers are small businesses and locally oriented. If Eddie's margins argument holds water, I think it'll be tough on brewpubs in small towns.
posted by SteveBennett | July 22, 2009, 11:38 AM
So many things to say...
Am I for raising the beer tax? No. I'm not for raising any taxes, particularly in Wisconsin, one of the highest taxed states in the nation. BUT... in a state where binge drinking and drunken driving leads the nation by a mile, we have the lowest beer tax. Fair? In my opinion, no. While I don't support any tax that will have long term detrimental effects on craft brewers or home brewers, its something that needs to be addressed. Unfortunately, it'd be pretty hard to tax just macro brewers, so it's a come one, come all deal. It's a sticky situation and full of typical political bullshit, but, if properly executed and put towards the proper uses(and yes, I know the chances of that happening are about nil), I'm reluctantly for it.
posted by Nigel | July 30, 2009, 11:06 PM
In Michigan, they've proposed an increase in the excise tax - which has not been raised in decades. However, they leave out the fact that the retail tax on beer has been increase multiple times in the past several decades.
Couple this with the fact that Michigan's 70 breweries are one of the few areas of "growth" in our fair state, and its easy to see how poor this idea is. The problem with this logic ("tax the naughty beer drinker"), as always with tax increases, is the "unintended consequences"...the craft brew drinker is much less likely to be a binge drinker than the macro-swilling frat boy or alcoholic, but they're exactly the ones who will be most damaged by these increases....and the resulting decline in craft beer sales will hurt small businesses and DECREASE receipts of the business/payroll/sales taxes they're already paying, and eliminate them for the small brewers put out of business. Dumb.
posted by rings | August 3, 2009, 10:42 AM
Speaking of "beer and politics," did anyone else notice that the Obama/Massachusetts "Beer Summit" was nothing but CRAP beer, none owned by American companies??? Give me a break! Where's the outrage??
So much for "buy American."
I love it when the labor/protectionist crowd starts ranting about import cars and outsourced jobs whilst drinking a "Belgian" or "SAB" product, instead of a local - or even American owned - beer.
posted by rings | August 3, 2009, 10:51 AM
Gates ended up drinking Sam Adams Light--they didn't have the Red Stripe he asked for--so there was one American beer in the White House. But at least they were drinking beer. As the quote goes, one does not solve the world's problems over white wine.
posted by EddieGlick | August 3, 2009, 3:22 PM

Drinkin’ And Thinkin’

Beer Dorks News

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Chicago now has the most breweries of any city in the country. Other things Chicago has the most of: murders, mobsters, and Ditkas.
Trying to spin it positive, BA releases end of year graphic. Only 5% growth in the craft sector when nearly 1000 new breweries opened? That's a collapse waiting to happen.
R.I.P. Tallgrass... another casualty as the regional/national craft beer market continues to get squeezed.
Wait... Constellation Brands cut all of the Ballast Point and Funky Buddha sales staff? They merged it with their Corona/Modelo staff?? We're SHOCKED!!!
Pizza Beer founder crying about failure of company, blames everyone else. Reminder, the beer tasted like vomit. Try having better ideas or making better products so you're not a failure.
It's Bud Light so doesn't really matter, but we expect this beer to be sitting around for awhile.
Indiana brewery to open with controversial beer names to "get the conversation going". Translation: taking advantage of serious issues for free publicity.
Hundreds of amazing beers in Wisconsin and the Cubs took back the one everyone drinks just because it exists and people have heard of it. How fitting...