The most expensive ingredient in beer? It’s not hops, it’s taxes.

February 19, 2015
Goose Island beer taps are seen amongst other craft beers at a bar in New York

Craft beer taps at a bar in New York, January 21, 2015. REUTERS/Brendan McDermid

Whether you like craft beer brewed in small batches or the mass-produced variety, the most costly ingredient that goes into every pint of beer in the United States is taxes. With federal, state and local levies, taxes make up, on average, more than 40 percent of the cost of beer purchased in the United States. In an effort to reduce the excessive tax bite, two competing bills have been proposed this month on Capitol Hill, along with legislation at the state level.

One proposed bill, the Small BREW Act, would, if passed, provide targeted federal excise-tax cuts for beer made by domestic brewers, with tax relief based on volume. This bipartisan bill would change the definition of a small brewer.

The federal government now levies a $7 tax on each of the first 60,000 barrels produced by small brewers. After that, the tax spikes to $18 a barrel. Businesses not defined as small brewers — those that produce more than 2 million barrels annually — must pay the $18 federal tax on every barrel they make.

A worker walks past a brew kettle in the brew house at the Coors brewery in Golden, Colorado

A worker walks past a brew kettle in the brew house at the Coors brewery in Golden, Colorado, October 16, 2007. REUTERS/Rick Wilking

The proposed bill, however, would halve the tax for small brewers on the first 60,000 barrels to $3.50 a barrel and redefine a small brewer as a business producing fewer than 6 million barrels a year, as opposed to the current 2-million barrel standard.

Senators Ben Cardin (D-Md.) and Susan Collins (R-Maine) introduced this bill. It has 25 Senate sponsors from both parties.

A competing bill, the Fair BEER Act, would provide federal tax relief for brewers of all sizes that are headquartered both domestically and abroad. Brewers producing 7,143 barrels or less a year, which represents 90 percent of brewers — would be exempt from paying federal beer excise taxes.

Brewers who produce between 7,144 and 60,000 barrels would face a $3.50 a barrel excise tax. Production in excess of 60,000 and up to 2 million barrels would face a $16-a-barrel tax. An $18-a-barrel tax would apply to production beyond 2 million barrels.

This bill, introduced by Representatives Steve Womack (R-Ark.) and Ron Kind (D-Wis.) has 23 co-sponsors.

But not just lawmakers on Capitol Hill are looking to provide tax relief for beer drinkers. State legislators seek to reduce the excessive tax burden on suds. In addition to the federal excise tax, all 50 states apply punitive taxes on beer. Tennessee, for example, levies the highest excise tax on beer at $1.17 a gallon. Alaska comes in second, with a rate of $1.07 a gallon. Wyoming has the lowest beer excise tax, at $0.02 a gallon. Wisconsin and Missouri have the next lowest, at $0.06 a gallon.

The bartender in the lounge adds a slice of orange to a Blue Moon Ale for a tourist at the Coors brewery in Golden, Colorado

A bartender adds a slice of orange to a Blue Moon Ale at the Coors brewery in Golden, Colorado, October 16, 2007. REUTERS/Rick Wilking

Despite having the lowest beer excise tax, Wyoming state legislators are moving to get rid of their 2-cent-a-gallon beer excise tax, which was instituted in the 1930s. The Wyoming House of Representatives passed legislation at the end of January that repeals the state beer tax. The bill is now pending in the Wyoming Senate. The beer excise tax generates only $300,000 annually for the state.

“It was an archaic law from the Depression days tied to the gold standard,” Wyoming Representative Jim Allen (R), who voted in favor of the bill, told a local newspaper. “The majority thinking was removing it would be helpful to young, growing local breweries.”

The Wyoming repeal bill follows successful efforts in other states to promote the growing beer industry. In 2013, months after Republicans took full control of the North Carolina General Assembly and governor’s mansion for the first time in more than a century, state legislators passed the Growler Bill, which allows Tar Heel State retailers to sell growlers (64 oz. glass jugs) of beer. Before this reform, only breweries were able to sell growlers. Now, North Carolinians can fill up growlers at retailers like Whole Foods and Total Wine.

The same month that North Carolina Governor Pat McCrory (R) signed the Growler Bill, South Carolina Governor Nikki Haley (R) signed the Pint Bill, which permits Palmetto State breweries to sell up to 48 ounces of beer right from the tap.

Before this reform, South Carolina breweries were only allowed to sell 16 ounces of beer a customer, and that had to be served in four-ounce glasses. These strict rules had served as a major impediment to local brewers trying to attract customers to their onsite tasting rooms.

To match feature USA-BREWING/BROOKLYN

A six pack of the Brooklyn Brewery’s beer in New York, December 18, 2006. REUTERS/Keith Bedford

The beer industry contributes nearly $250 billion a year to the national economy, along with 2 million jobs. Federal and state lawmakers are wise to provide tax and regulatory relief to brewers, as well as beer lovers who ultimately bear the currently onerous tax burden on beer.

Beer-industry expansion in recent years has produced numerous business success stories and helped revitalize small towns like Kinston, North Carolina. Anything that lawmakers can do to get government out of the way of industry growth is a good thing for all Americans.

307 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Oh shut up. Another Grover ideological fest. Don’t have to think, do you, Grover? It’s all so simple. You should be shot as a traitor to common sense, the Union and civil discourse. Behind closed doors you turn the screws and try to bend power to your one percent friends. Now you throw ‘beer’ to the peasants to make us nod in dumb silence. No, thank you, I’ll drink my beer without your offer of two cents back. Shame on Reuters for giving a forum to you and that dark rat hole in Washington you call home. Do us all a favor, stay there and don’t darken our doorway again.

Posted by matto | Report as abusive

WOW. I always thought that a Reuters forum was an assembly to offer opinions on topics of interest, NOT to stick pins in the eyes of those who offer up their thoughts for public review. Mr. Grover Norquist (co-author) is a well-known political advocate opposing tax increases. He is founder and president of Americans for Tax Reform. I laud that kind of work where as you would rather continue to pay taxes in the amounts you do now? And some pretty heavy accusations of visions of political grand standing and greed. Things that are broken do not get repaired unless people take action. You sling a lot of mud, but don’t clean up too well. Make a statement next time you buy your beer. Pay $30, $40 or $50 for your case of Natty Lite. I’m sure the government will appreciate your hardline stance….

Posted by Darkdart | Report as abusive

Again, Norquist fails to state what investments and services provided by government to protect the health and welfare of constituents is lost by these tax.

Finally he did not claim job creation, that has never occurred from tax reductions.

He stated the owners would become more wealthy. True.

That consumers would save.

Really!

Has anyone ever seen their prices go down because of tax reductions?

With federal and state budgets already stretched to provide infrastructure and services, how are these tax cuts affordable as beer is an inelastic commodity.

Will we need to reduce food inspections at our borders and in our restaurants.

This is just another effort to place the tax burden on middle class families so that the wealthy can support their political party.

Posted by Flash1022 | Report as abusive

Here’s your cheque for supporting beer manufacturers.

Posted by Truth_Now_Truth | Report as abusive

Grover, the destroyer of freedom and the bringer of the new world order has likely worshiped at the alter at bohemian grove.

Posted by brotherkenny4 | Report as abusive

Another piece that by paid propagandists that should not have been run for free but only as a paid political advertisement and labeled as such.

Posted by QuietThinker | Report as abusive

This is a wildly inaccurate article and headline. As an owner of a microbrewery excises taxes are almost a completely inconsequential input into a barrel of beer and is NOWHERE near the most expensive ingredient.

Labor is by far and away your biggest “ingredient”, followed then by your grains. You are looking at between $40 to $70 a barrel in grains depending on the gravity of the beer. Yeast is on average triple the cost of taxes on a barrel of beer.

Do actual research or look at an actual recipe and grain bill before things like this are published.

Posted by amhippi | Report as abusive

It’s saying that 40% of the cost to the consumer comes from taxes, not 40% of the cost to the brewer.

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