Craft Beer, Wine and Spirits Producers Face Major Tax Hike if Congress Doesn't Get Its Act Together
Despite widespread bipartisan support, the Craft Beverage Modernization and Tax Reform Act still hasn't been approved with the December 31 expiration date looming.
It's easy to sit back and say that America's decade-long boom in craft alcoholic beverages—be it beer, cider, wine, spirits, or anything else made by independent producers (I see you out there, hard seltzer)—is due to increased interest, but that's only half the story. Changes in legislation have also made it both bureaucratically easier and financially more viable to open these kinds of businesses. On the federal level, a major piece in that puzzle has been the Craft Beverage Modernization and Tax Reform Act (CBMTRA). First passed in 2017 with bipartisan support, the law's primary effect has been to slash federal excise taxes on alcoholic beverages at production levels intended to encompass small producers. This year, the law has come up for renewal—and it still has bipartisan support—but with just days left to go, no deal has been made to extend the tax cuts, and the impact on your alcohol could be huge.
A House bill looking to make these tax cuts permanent currently sits at 326 cosponsors; meanwhile, in the other chamber, 73 Senators have backed their version of the bill. So 75 percent of congress supports this legislation, and yet, due to infighting, what once seemed like a slam dunk now has no guarantee it will pass before the tax cuts end on December 31.
The effect on small producers could be catastrophic: In a joint op-ed from Bob Pease and Jim McGreevy—presidents and CEOs of the trade groups the Brewers Association and The Beer Institute, respectively—they suggest that 99 percent of U.S. breweries would see their excise taxes double. "For the more than 2,000 new brewers who opened their doors after the lower federal excise tax was enacted, this tax increase will be a huge financial burden," they wrote.
Distilleries would have it even worse, with taxes rates set to jump from $2.70 to $13.50 per proof gallon for the first 100,000 proof gallons—a potential million dollars in additional tax next year. And according to the New York Times, many would have to make their first payments as soon as January 15. "We're all a little dizzy," Margie Lehrman, the chief executive of the American Craft Spirits Association, told the paper. "The congressional leadership seems stuck because of issues much larger than us." Similar to craft breweries, a large number of craft distilleries—about 400—have opened since the cuts were enacted, meaning they may not be prepared to handle such a dramatic change.
What's equally frustrating is that, by many metrics, these bills appear to be working. Pease and McGreevy suggest that the cuts have "created more than 150,000 new jobs in the craft brewing industry alone." And yet, if the cuts expire, it will come at a time when growth in the craft beer industry has already been slowing: a potential double-whammy.
For drinkers, the possible negative impact is clear: potentially higher prices, especially from smaller and newer producers who may have a harder time dealing with a tax increase—and that's assuming these producers are able to simply stay in business. You'd think with all the negativity in Washington right now, Congress would want to get this one passed just to make everyone happy.