The Great American Beer Festival wrapped up last month, announcing the winners of 96 styles of beer submitted by over 1,700 breweries from the around the United States. The winning breweries are sure to enjoy the bump in sales as beer enthusiast seek out the top beers from the competition, a big advantage in a crowded marketplace. But all breweries may soon receive some help from Uncle Sam. A new bill is making its way through Congress that will lower excise taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on both craft and macro brewers. So even if you can’t find the winners of the Great American Beer Festival where you live, you just might find a lower bar tab.
The beer market has changed significantly over the past decade. New categories of beer and similar beverages have popped up as new brewing techniques have developed. The Great American Beer Festival had awards for 96 beer categories this year, which included four new styles and many new subcategories. The rapid growth of the beer industry has created struggles for regulators who are tasked with taxing and regulating beer and other alcoholic beverages.
The Craft Beverage Modernization and Tax Reform Act attempts to improve the regulations and taxes governing the alcoholic beverage industry. The bill includes new categories, such as treating cider as a separate category from wine, and new tax rules that reflect the costs and structure of smaller producers.
Currently, beer is taxed by the federal government at $18 per barrel, roughly 30 gallons, but there is a reduced rate for all breweries making less than 2 million barrels. The reduced rate of $7 per barrel applies to the first 60,000 barrels, after which the remaining barrels are taxed at the standard $18 per barrel.
The proposed excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on beer decreases the reduced rate for small domestic breweries and introduces a tiered excise tax for all breweries, including importers. Domestic breweries producing less than 2 million barrels per year will have their taxes reduced from $7 to $3.5 per barrel for the first 60,000 barrels. All brewers, regardless of size or origin, will have a two tiered tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on production: $16 per barrel for the first 6 million barrels and $18 per barrel on any barrel produced after 6 million.
The bill would reduce federal excise tax revenues by roughly $126.8 million, about 3.5 percent of the tax revenue from this source. A disproportionate share of these savings will go to small brewers, who will receive $58.2 million or a 23 percent reduction in taxes. Breweries with production less than 60,000 barrels will see their excise tax bill cut in half.
Large breweries, both foreign and domestic, as well as small foreign breweries benefit from the proposed changes as well. Larger breweries will pay $68.6 million less in excise taxes per year, about 2 percent of their excise tax burden.
Although the Craft Beverage Modernization and Tax Reform Act reduces taxes for breweries, it does have structural problems. It keeps the anticompetitive rule from the current law that strips breweries producing 2 million or more barrels of the reduced rates on the first 60,000 barrels. This creates a tax cliff, which discourages medium-sized breweries from expanding and competing with large breweries.
While the bill retains some inefficiency rules, the Craft Beverage Modernization and Tax Reform Act is a step in the right direction. It reduces the tax burden on all breweries while further reducing the costs of small brewers. This should translate into lower prices and more beer production in the United States. Less expensive beer is great news for all of us because, whether you are celebrating or commiserating after the Presidential elections, we can all agree on one thing: we will probably drink a lot of beer.
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