There’s a move on in congress to cut excise taxes on beer. HR 4278 (which you can read over at the Brewers Association website) or as it’s also known, the Brewer’s Employment and Excise Relief (BEER) Act, would cut in half the tax small brewers fork over to the government. This applies to the first 60,000 barrels of production, but there’s also a further reduction of $2 a barrel up to the 2 million barrel mark for brewers producing up to 6 million barrels a year.
The aim here is to infuse cash into the coffers of small breweries and, hopefully, thereby produce jobs. While that is a truly laudable goal, lets not forget who ultimately pays those beer taxes: the consumer that buys the beer. And that beer consumer deserves a break. Beer prices, especially craft beer prices, have been on the upswing in recent years. Many craft brewers are doing very well indeed in an otherwise gloomy economy. Delaware’s Dogfish Head, in fact, recently had to pull distribution from several states because they just can’t brew enough beer to meet demand.
That’s not to say that beer excise taxes should not be reduced; they absolutely should. But the small brewers should not keep the proceeds, at least not all of them, regardless of how much that would help them. At least some of those reduced taxes should go to the consumer in the form or reduced prices. Since reduced prices should stimulate demand, the small brewers should sell more beer and end up in better shape anyway.
Kicking back the excise taxes to the consumer would have a snowball effect on prices, greater than the actual tax reduction. That’s because excise taxes are added at the production level rather than the sales level, so they get marked up on every trip of their journey to the consumer. For example, when a brewer pays $7 today to the government on a barrel of beer, they add it to what they charge the wholesaler. Let’s say the wholesaler marks that barrel up 25% when they sell it to the retailer, meaning that $7 just became $8.75. If the retailer marks his beer up by, say, 50%, we’re now at $13.13. And sales tax gets added to that (yes, you pay tax on tax), at 7% we finally arrive at $14.05, or double the original amount.
And you pay that. Not the brewer, not the distributor, and not the retailer. And you deserve some of it back.