Beer tax overhaul pits big brewers against crafty upstarts

Dubbed the Small Brewer Reinvestment and Expanding Workforce Act or “BREW Act,” the legislation would reduce federal excise taxes on beer, primarily benefiting those businesses that produce less than two million barrels annually. Rates would be stay the same for brewers that produce more.

Sponsors of the legislation argue the current code unfairly penalizes the smaller, mom n’ pop companies. “Many of these brewers start out enjoying a hobby, but end up growing businesses that create jobs and provide a product that people enjoy. The tax code needs to catch up to the nature of the brewing industry and not penalize the nation’s small brewers,” said Rep. Eric Paulsen, R-Minn.

Large brewers oppose it, arguing that any reform should be across-the-board. “It doesn’t meet the test of being comprehensive, equitable and fair,” said Chris Thorne, spokesman for the Beer Institute trade association. Another major trade group representing beer distributors, the National Beer Wholesalers Association, also opposes the BREW Act.

The big brewers are pushing their own proposal, dubbed the Brewers Excise and Economic Relief Act — the BEER Act — when it was introduced last year, which would reduce beer excise taxes overall, though the primary beneficiaries would be the larger brewers. Both proposals face an uphill fight, with advocates on both sides having tried for years to get momentum in Congress.

Currently, breweries that produce 2 million barrels annually or less pay a federal excise tax of $7 a barrel for the first 60,000 they produce and then $18 a barrel for each subsequent one. Brewers that produce more than two million barrels annually don’t qualify for the lower rates and must pay a flat tax of $18 for each barrel produced.

The BREW Act would change that so that the taxes would be $3.50 per barrel for the first 60,000, then $16 for each subsequent barrel up to two million, and finally $18 for each one after that up to six million barrels. Brewers that produce more than six million annually would play a flat rate $18 for every barrel.

Advocates argue that better reflects the industry since many craft breweries produce well over 60,000 barrels, but then find themselves paying tax rates equal to the ones paid by major, multi-national corporations such as Anheuser-Busch InBev. “Our bill rightfully recalibrates the beer excise tax for America’s craft brewers, allowing them to grow and reinvest in their businesses,” said Rep. Richard Neal, D-Mass.

Michelle Minton, consumer policies study fellow at the free-market Competitive Enterprise Institute, says the main beneficiaries would be medium-sized brewers. “The BREW Act would increase the number of barrels a brewer could produce and still qualify for the reduced excise tax rate. That will pull in some of the larger craft brewers like Boston Beer Company and Sierra Nevada,” she said.

The major brewers, which produce an estimated 90 percent of the beer sold in the U.S., have pushed for legislation that would reduce the rate for those producing more than 2 million barrels annually by half to $9 per barrel. For those producing less than two million barrels, the first 15,000 barrels would be tax-free. The rate would then rise to $3.50 a barrel up for annual production up to 60,000 barrels and then $9 for each barrel after that.

That legislation, the BEER Act, is expected to be re-introduced early this year, Thorne said.

“If you are going to protect beer drinkers from the taxes they pay, then you have to include all brewers and importers,” said Thorne, who noted that small brewers are already receiving a tax break.

Bob Pease, chief executive officer of the Brewers Association, which represents the craft industry, countered that the multi-national corporations hardly need any taxpayer help. “Why should a company like Anheuser-Busch InBev, which had … profits of over $18 billion in 2013, get any tax relief from the federal government?”

The BEER Act would result in $1.6 billion less in tax revenue for the federal government, according to an analysis by the Competitive Enterprise Institute, which partly explains why it has struggled to gain traction in Congress. The BREW Act, by contrast, would reduce revenue by $65 million.

Ironically, the small price tag may be why the BREW Act has struggled. As a stand-alone bill it is easily overlooked. “[Lawmakers] tell me it is too small and needs to be attached to a broader legislative vehicle. Our legislative champions have not found that vehicle,” Pease said.

Minton says either the BEER Act or the BREW Act would be an improvement over current policy. The major brewers’ approach would be the better one, she said, since it would be broader and more comprehensive.

A much better approach would be to scrap the excise tax entirely, Minton said. “Excise taxes should not be used to penalize companies just because they are large. They should be reduced across the board or just scrapped.”