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January '03: Taxes

February '03: Coffee

March '03: St. Patrick's

April, 2003

Cuz I'm the Tax-man, Yeah, I'm the Tax-man...

Yes, it's another editorial about taxes. I know I just did one back in January, but two things happened recently that made me pull out another one. First, I had to do my own taxes. What an onerous pain in the neck, particularly for the small businessman. I have to account for every single stinking expense, from the digital camera I bought to cover Oktoberfest to the 50 cent toll I paid on the PA Turnpike to all my lodging on the trips I made to research New York Breweries. So I've got taxes on the brain.

I also recently hosted a roundtable discussion on bourbon. We had Bill Samuels (Maker's Mark), Julian Van Winkle (Old Rip Van Winkle), Lincoln Henderson (Woodford Reserve/Brown-Forman), Fred Noe (Jim Beam), Jimmy Russell (Wild Turkey), Elmer T. Lee (Buffalo Trace) and Craig Beam (Heaven Hill) all sitting at one table talking bourbon for almost two hours. It was wonderful, and you'll see it all in Malt Advocate in about four months. 

But right here, right now, I want to tell you about two of the questions we talked about. I asked them what they thought was the industry's greatest challenge. There was some thoughtful silence, then Bill Samuels threw in his answer: "Taxes." I was surprised, but I was even more surprised when heads nodded all around the table. I figured it would be neo-prohibitionists, or lawsuits, or a graying market, or broadcast advertising, but taxes? Yes, they all agreed, and I'll tell you why shortly. 

First I want to tell you about the second question, which follows directly on the heels of the first one. I asked them why it was that good, even great bourbon was so darned cheap? An expensive bottle of bourbon, say, Wild Turkey Kentucky Spirit at around $45 a bottle, is only in the range where single malt Scotch whisky starts, and they go up a lot from there, whereas most exceptional bourbons don't get out of the $20-$30 range. You can pick up a bottle of Evan Williams Vintage Single Barrel for under $25. You could be making more money, I said: why isn't whiskey more expensive?

You don't know the half of it, they told me. Taxes account for two-thirds of the retail price of a bottle of bourbon: that's actually higher than average for spirits in the U.S. There's the federal excise tax, based on the proof and the volume, paid once as the whiskey leaves the distillery. Then there's what Kentucky calls the valorum tax, essentially a state property tax on the whiskey in the warehouse, and the tax that boosts bourbon's tax bill: that's paid every year, and yes, it goes up as the whiskey ages. "Bourbon is the only thing that costs you more in taxes as it gets older," explained Jimmy. "Everything else depreciates with age." Then you've got all the other taxes: sales tax, various transportation taxes, property tax on the distillery land, and so on.  

So when Jimmy Russell sells a bottle of Wild Turkey 101 for $18, he's got to squeeze everything -- labor costs, packaging, distribution, grains, barrels, maintenance, losses and damage (Wild Turkey lost the roof off a warehouse two weeks ago in a twister), not to forget profits -- out of about $6 a bottle. When you consider that even the fairly young Jim Beam White Label sits in the warehouse for four years and a day before it gets anywhere near a store shelf, well, that ain't much!

Okay, the taxes are stiff, but a challenge? You bet. It's because of something called equalization. Tax rates on liquor ("Hard liquor," snorted Lincoln Henderson) are much higher than those on beer and wine. The price of a bottle of beer, by comparison, is about 44% taxes. Both are too high, of course: the average tax component of retail prices in the U.S. is 32% (these numbers are from the Beer Institute's Roll Back the Beer Tax website). But you can see that the taxes on liquor are substantially higher. 

Equalization is the holy grail of distillers. It would put them on an equal tax footing, drink for drink, with wine and beer: the same amount of tax on a bottle of beer, a glass of wine, and a 1.5 oz. drink of whiskey.  That would obviously put them on a more equal footing in retail, and that's the challenge, to get closer to wine and beer.  

That's a stiff challenge, given the public's perception of liquor as a "hard" drink. Chances are you'll never see liquor taxes come down, and there are almost always plans afoot to raise them. The problem with raising them is that liquor tax increases inevitably result in revenue loss. That's not theory, it's fact: the last two increases in the federal excise tax (in 1985 and 1991) resulted in loss of tax revenue...and loss of jobs, which meant more revenue losses and expenditure increases (to cover unemployment costs).  These numbers come mostly from the website of the Distilled Spirits Council of the U.S. (DISCUS). 

What Can You Do? I'm glad you asked. Write your legislators! You can usually do it by e-mail: Google your state and "government" and you'll come up with an address; at the federal level you can contact your Congresscritter at this website, and you'll find your Senators at this one. 

Talk to them about your willingness to pay your fair share. But let them know that as a responsible drinker, you don't think it's fair that you should have to pay more just because some people abuse alcohol. To use an analogy the Beer Institute came up with, that's like giving everyone a speeding ticket as soon as they pull out of their driveway, just because you know some of them are going to exceed the limit. Tell them you don't want to see higher alcohol taxes, and tell them to look at New York, where Governor Pataki has lowered the state tax on beer by almost half since taking office, and plans to lower it more this year.

Then let them know that equalization is fair, too. But tell them you don't want to see beer and wine taxes brought up to liquor levels. It's time to take the burden off those of us who enjoy fine spirits: bring liquor taxes down! 

Write that e-mail today. 

 

 

Copyright 2008 Lew Bryson. All rights reserved. 
Fee required for reprints in any commercial media.
Revised: October 31, 2003