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.
