The alcohol tax has been with us since the Revolutionary War and then was a device used to help pay for the Civil War. Honest Abe gave us the first tax on beer in 1862 at $1 a gallon. Even Cleopatra VII imposed beer taxes on the Egyptians to pay for their wars. In the early history of the United States, 80% of the federal budget was financed by taxes on beer, wine, and whiskey. The Whiskey Rebellion of 1794 was the direct result of a tax on alcohol that was increased from $0.09 per gallon to $0.25 per gallon.
The temperance movement began in the 1780s and had an active presence until Prohibition which lasted from 1920 to 1933. The tenets of temperance were that alcohol destroys the family, promotes abuse, destroys the mind, leads to alcoholism and destroyed the initiative. Basically, the alcohol was from the devil to capture and destroy the soul of man. In the mid 1900s, the message turned to the use of taxes as a means to throttle the availability of alcohol. The theory was that cheap alcohol was the genesis of youth abuse and was the main cause of tragedies on the highways.
There is research showing that increasing excise taxes on alcohol at the federal, state, and local levels will reduce consumption. Research also indicates that problem drinkers will purchase alcohol regardless of cost. So will higher excise taxes reduce consumption by problematic consumers?
Numerous studies have been conducted over the past two decades indicating some health benefits of moderate alcohol consumption. What seemed to start all studies of the health benefits or health dangers of alcohol was a study published in the 1980s known as the french paradox. More recently, many universities in the US began research on the antioxidant component of red wine. UC Davis in California has done research on the benefits of red wine. But today, if your opponent is opposed to consuming red wine, you don’t necessarily need to consume it to reap the benefits of resveratrol—it’s available as a dietary supplement.
Beer is wounded with many studies on the benefits of moderate consumption. Having written extensively on the pros and cons of alcohol use, my observations are that many studies have been done in the past, and there will continue to be more debate in the future. I do recall studies that were reported as fact and discredited in subsequent research. For example, coffee was to be avoided, now touted as full of healthy antioxidants. Kris Gunnars writes in “Healthline” reports, “Coffee is loaded with antioxidants and offers many benefits.
Aside from research for or against alcohol, there will never be a lack of researched positions for or against alcohol. The prohibition was one of those instances that showed that it is impossible to pass laws that regulate the consumption of alcohol, it has been part of cultures for 10,000 years. Prohibition was a well-intentioned law with a lot of supporting research that promoted the good of society; it failed for many health, social, cultural and logical reasons.
The December 2020 extension of the 2017 changes to the Federal Consumption Tax law has some benefits for craft beer producers. Overall, the Craft Beverage Modernization and Tax Reform Act (CBMTRA) will have minimal impact on the federal budget. Currently, the government receives approximately $1 billion per month in excise taxes according to alcohol problems and solutions. In the case of beer, federal taxes are levied on barrels (31 US gallons) distributed/removed.
Focusing on beer and not wine and spirits. The excise tax on beer going forward will remain at $3.50 per barrel for production of up to 60,000 barrels removed in a calendar year, or let’s call it distributed. Over 60,000 barrels up to 2,000,000, Federal Excise Tax is $16.00 per barrel. To add perspective to the new CBMTRA bill, the Bud Light band accounted for 30 million barrels sold in 2018.
The TTB (Tax and Trade Bureau) assumes that the equivalent alcohol content in beer, wine and spirits is:
At 12 ounces can or bottle of regular beer (=) A 5 oz. dinner glass of wine (=) A glass of 1.5 oz. shot of 80 degree spirits. The beer is a bargain from a low tax standpoint. Liquor consumers will pay 2.5 times more in excise duty than a beer consumer.
But the federal excise tax isn’t the end of the tax saga, states and some cities and counties also get their share of the tax block. These state and local entities add their excise tax and then add their sales tax. Each state has its own tax laws in addition to the federal ones. Of the approximately 8,700 craft brewers, 99% produce less than 60,000 barrels in a calendar year, which means that only about 50 craft breweries produce more. Basically, the reduced federal excise tax from 2018, which is now permanent, helped the small producer. In total, the new tax law saves all craft brewers approximately $80 million per year. (An acknowledgment to The Brewers Association for their decades of work on CBMTRA.)
A federal excise tax reduction is rarely noticed by way of lower prices. The price of beer appears to be inelastic: decreasing or increasing the price does not seem to affect buying trends. It will be interesting to see if cash-strapped states and cities take advantage of a permanently reduced federal beer tax to increase their taxes on beer, as well as taxes on wine and spirits.
Today, the tax bite into a 12 oz. beer is more than 40% of the retail price at a grocery store, according to alcohol problems and solutions. The state with the highest tax on all alcoholic beverages is Tennessee. Colorado tips the balance at the lower end of the tax scale.
Here is a sample summary of the beer consuming country’s taxes: (Source: Sale-Tax.com July 2020)
Tennessee:
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Federal excise tax $3.50/barrel $0.12/gal.
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Tenn. Excise tax $1.29/gal.
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Wholesale tax per box $5.36/box
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State Sales Tax (9.250% Paid on sale.
Illinois: (Chicago)
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Federal excise tax $0.12/gal.
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Illinois beer tax $0.23/gal.
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Chicago beer tax $0.29/gal.
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Cook County tax $0.06/gal.
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State Sales Tax (10.25%) Paid on sale.
Some interesting facts:
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There are liquor distribution monopolies in Utah and Vermont and a few other states. They are monopolized because the state is the only seller of drinks.
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The alcohol excise tax is a very regressive tax, plus a burden on low-income people.
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For the same amount of alcohol in beer/wine/spirits, the liquor tax is half the cost of the beverage and exceeds the beer tax by approximately 2 times.
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Almost all states require that alcoholic beverages be distributed by state and federally licensed distributors through the “three-tier distribution” system. California and some other states allow self-distribution, but include some restrictive rules.
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Moderate beer consumption offers some research results that claim to provide specific health benefits. But be prepared for counterclaims.
Taxes on beer, wine, or spirits are confusing. Each state is different in how it taxes: excise or sales tax. Some states go further by increasing excise duties relative to ABV (alcohol by volume): higher alcohol content has additional taxes added. Other states, such as Illinois, allow cities and counties to impose their own sales tax on beer.
With the repeal of the 21st Amendment, states were given control over how beer, wine, and spirits were distributed within their state. The Three Tier Distribution system was part of that agreement that allowed states to generate tax revenue. Technically, the Three Tier Distribution system allows for monopolies through the protection of the Beer Franchise Law. Generally, Beer Franchise laws are to protect distributors from the heavy-handed actions of brewers. Most of these laws do not consider the needs of small craft brewers in today’s marketplace.
Health!