Congress May Lower Federal Taxes on Drinks

Lower Taxes on Drinks

The Beer Institute recently reported some happy news: 51 U.S. senators support a bill to lower federal taxes on drinks. The Craft Beverage Modernization and Tax Reform Act of 2015 (S. 1562) would: Lower the federal excise tax to $3.50 per barrel on the first 60,000 barrels for domestic brewers who make fewer than 2 million barrels per year; Reduce the federal excise tax to $16 per barrel on the first 6 million barrels for other brewers and beer importers;

  • Maintain the current $18-per-barrel rate for brewers who produce more than 6 million barrels;
  • Lower the tax on liquor for the first 100,000 gallons produced from $13.50 to $2.70 per gallon; and
  • Exempt home distillers from federal taxes.The bill also enacted several other reforms, including reducing some tax-related reporting requirements and defining “cider” so that fizzier versions are not subject to pricey sparkling-wine taxes. (Cider’s taxes are 22.6 cents per gallon and bubbly’s taxes are $3.40 per gallon).But the hurdles to lower drink taxes are not insubstantial. The Senate nor the House bill has reported out of committee, and Congress isn’t spending much time in session. Senate Majority Leader Mitch McConnell (R-Ky.) and House Speaker Paul Ryan (R-Wis.) both would need to find floor time, which is scarce, to move the bill. And lest it be forgotten, it usually takes 60 votes to get legislation through the Senate, which means another nine supporters need to be scrounged up.The legislation also faces two other basic challenges. First, it may come with budgetary costs. To date, the Congressional Budget Office has not scored the bill, but the tax cuts quite possibly will create budgetary red ink.The second and more fundamental issue is that the legislation leaves in place most of the inequities in drinks taxation. The amount of alcohol is the same in a 12-ounce beer, a 4-ounce glass of wine, and 1.5-ounces of liquor. However, the taxes are wildly different. For each ounce of alcohol they contain, liquor’s taxed at 21 cents, wine is 8 cents, and beer, 10 cents. This is according to calculations by the Congressional Research Service. Sparkling wine is taxed three times more than regular wine without any reason.Indeed, the whole system of alcohol taxation is fundamentally irrational. As a result, any drinks legislation inevitably pits the various drinks-makers against one another. Some members of Congress continue to voice support for other bills that offer proposals to make drinks taxes less unequal.The obvious solutions: either abolish alcohol taxes entirely, or tax alcoholic beverage based on the amount of alcohol it contains. Perhaps one day a brave legislator will propose one of these reforms. The tax man may hate it, but the thirsty electorate will cheer.
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