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