Just Taxes Blog by ITEP

New Tax Breaks for Craft Beer Are a Drop in the Barrel: 76 percent of Tax Bill’s Beer Tax Cut Goes to a Handful of the Biggest Producers

January 10, 2018

The $1.5 trillion tax cut that took effect on Jan.1 was never really going to be about small businesses, despite President Trump’s transparently false claims to the contrary. However, one economic sector still appears happy, for now, to hoist a mug to Congress’s successful sleight of hand: craft breweries.

The tax bill cuts federal excise taxes on the production and distribution of beer, wine and distilled spirits, including (but not limited to) craft brewers. But this does not mean our new fiscal booze fest is geared toward small breweries. Like the tax plan more generally, the beer tax cut remains, first and foremost, an unneeded giveaway to the biggest corporations and foreign producers.

In the world of federal tax reform, not much attention is paid to alcohol taxes in part because it’s very difficult to say with a straight face that these taxes are too high. Since 1991 and until last year, the federal beer tax was $18 per barrel, with a special lower craft beer rate of $7 on the first 60,000 barrels for companies producing less than 2 million barrels a year. The $18 a barrel equated to about 58 cents for a six pack. For craft brews, it was just 33 cents per six pack. Moreover, the tax had not been adjusted since 1991, which means in inflation-adjusted terms the tax rate has fallen by more than 40 percent since it was last hiked.

If a beer tax cut is an answer to the question no one was asking, the good news is that Congress chose to cut booze taxes in a way that at least acknowledges the existence of small businesses. For each beer producer, the new law cuts the excise tax rate on the first 60,000 barrels of beer from $7 to $3.50 per barrel. For barrelage over 60,000 all the way up to 6 million, the tax rate falls from $18 to $16 per barrel.

The bad news is these “small business” tax breaks are a drop in the bucket. It turns out that beer, like most things, is overwhelmingly produced by a very small group of big businesses. Of the roughly 5,000 producing domestic breweries in 2016, 9 out of 10 produced less than 7,500 barrels. Eighty three percent of all beer produced in the United States came from a handful of companies that crank out at least 2 million barrels a year.

This means that the vast majority of the beer tax cut in the new tax law goes to very large companies, including foreign-owned businesses and importers. The biggest one half of 1 percent of U.S. beer producers will see 76 percent of the tax cuts from the alleged small business-oriented beer tax cut.

None of this is to deny that small businesses will see at least some benefit from the beer tax cut. But even for the Dogfish Heads of the world, these tax cuts are unlikely to transform the way they do business. In a cruel twist, the beer tax reductions are temporary and will expire sooner than virtually any other provision in the 500 pages of the new tax law. Closing time for the raft of alcohol tax breaks comes at the end of 2019. Given the huge unpopularity of the tax bill overall, this short window will likely prevent craft brewers from making any long-term plans about how to invest their limited tax savings.



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