Cheers! Beer tax break brews bipartisanship

Introduction

Lawmakers who normally wouldn’t warm bar stools together are brewing up some bipartisanship to slash the federal excise tax on small beer producers.

The sudsy collaboration invited quips from two senators who rarely agree but are together behind this bill. “If beer can’t do it, nothing can!” enthused Democrat Chuck Schumer of New York. “Maybe if we drink more of it, we’d have a better level of bipartisanship,” added Republican Richard Burr of North Carolina.

Both senators enjoy generous political support from the beer, wine and liquor industries, according to data compiled by the Center for Responsive Politics. Schumer was No. 1 ($155,600) and Burr was No. 4 ($66,600) on a ranking of PAC and individual donations to Senate campaigns in 2009-2010.

While Republicans and Democrats are battling over budget deficits and spending cuts, a more convivial group is clinking glasses across the aisle to support the “Brewer’s Employment and Excise Relief Act,” or BEER. It would forfeit an estimated $67 million in excise tax revenues over five years, according to a study financed last year by the Brewers Association and published by a professor at Harvard University.

Sponsors of the legislation are publicly touting the Harvard study as justification for action, seizing on its projection that 4,200 new jobs over five years could be created nationwide as a direct result of increased economic activity sparked by tax relief for small brewers. The sponsors, when asked how the beer break squared with looming budget cuts, all cited job creation.

“Micro-brewing and small brewing is creating a lot of jobs,” Schumer told the Center for Public Integrity. “It’s also, because there are brew pubs at these breweries, revitalizing downtowns and bringing lots of young people back downtown.

“The excise tax is heavy, too heavy for a small business.”

Cutting excise tax helps bigger brewers too

The brewers are seeking the changes in Congress during a boom for microbreweries around the country. The craft-beer industry grew 11 percent by volume in 2010 while the overall beer industry was flat.

Lowering the excise tax, which has not changed since 1976, would also help a handful of well-known brewers whose success outstripped the tax code’s embrace of “small.”

The effort to top off tax advantages and to lift the barrel-limit definition from 2 million to 6 million per year for small brewers went nowhere in the last Congress. But continued congressional interest in job creation encouraged the brewers to try again. “With the Republican majority in the House, the climate is even more favorable,” said Bob Pease, Brewers Association chief operating officer.

Pease said his team squired brewery-owners representing some of the more than 1,700 small beer producers nationwide during a March 28 lobbying assault on staffs representing 42 members of Congress and five senators.

“When we tell them that small brewers represent just 5 percent of the market by volume, but contribute 50 percent of the jobs in the domestic beer industry, they say, `What? Can you tell me that again?’” Pease said.

A change in the tax code definition would lower brewers’ federal liabilities, and might produce ramifications that reach back into the states.
For instance, it could offset the possible effects of cash-strapped states that are trying to raise taxes on beer and brewers. Oregon, the second largest microbrewery producer in the country, flirted in 2009 with what might have become the first tax increase imposed on beer producers in 32 years. Illinois, Maryland, Pennsylvania and Michigan recently floated similar proposals, according to the Council of State Governments.

Expanding a federal definition for small breweries might also support states’ efforts to win advantages for craft brewers who are balking at restrictions on their flexibility to move their brands of beer among different distributors, said Eric Shepard, the executive editor of Beer Marketer’s Insights, an industry newsletter. One such measure pending in Massachusetts would also set the small-brewer threshold at 6 million barrels a year.

As with the federal effort, similar legislation in the Bay State is heartily supported by the Boston Beer Co., the largest American-owned brewery and the leading microbrewer in the country. Lifting the federal tax threshold for small brewers to 6 million barrels would benefit Samuel Adams’ creator, Boston Beer Co., which last year shipped 2.3 million barrels of beer, a 12 percent increase over 2009. The company has grown since its founding 26 years ago to employ 780 people.

Strong support in U.S. Senate

By the end of March, 25 senators from both parties – including eight members of the Senate Finance Committee – were on tap for BEER, introduced by Massachusetts Democrat John Kerry along with Mormon teetotaler Mike Crapo, an Idaho Republican. The malt barley industry is the fastest growing agricultural sector in Idaho, thanks to multinational large brewers, such as MillerCoors and Anheuser-Busch InBev, which are buying barley from farmers and building production facilities.

The CEO and founder of the Boston Beer Co., Jim Koch, made contributions totaling $4,800 to Kerry’s campaign war chest in December, according to the Federal Election Commission.

Among the senators supporting the beer legislation to date, the industry favorites in the last cycle, in addition to Schumer and Burr, were Ron Wyden, D-Ore., $77,122; Patrick Leahy, D-Vt., $54,000; Patty Murray, D-Wash., $50,774; David Vitter, R-La., $48,900; and Idaho’s Crapo, $38,333, according to the Center for Responsive Politics.

In the House, there are nine sponsors of HR 1236: Richard Neal, D-Mass., who got $54,528 from beer, wine and liquor interests in 2009-2010; Charles Boustany Jr., R-La., $15,000; Peter DeFazio, D-Ore., $12,662; Jim Gerlach, R-Pa., $12,000; Earl Blumenauer, D-Ore., $10,865; Duncan Hunter, R-Calif., $10,500; Lynn Jenkins, R-Kan., $9,650; Erik Paulsen, R-Minn., $8,000; and Ron Paul, R-Texas, $1,000.

The brewers do not expect to see the tax changes move as stand-alone legislation, Pease said, but hope the bill’s supporters could attach the provisions to another must-pass bill.

But Burr, who said he backs the excise tax bill on states’ rights grounds, was not optimistic.

“It’s very unlikely that anything like that will come out of the United States Senate,” he said. “It’s just not in the cards, because we’re going to be all-consumed with spending, deficit reduction and debt. That’s going to be the 800-pound gorilla.”