Q&A: What Big Bourbon wants from Congress

at 04:39 PM ET, 02/07/2012

Yesterday, I received an e-mail touting Rep. John Yarmuth’s (D-KY) leadership of the Congressional Bourbon Caucus. This brought together two of my great passions in life -- obscure congressional working groups and bourbon— and so clearly required further reporting. I spoke with Rep. Yarmuth this morning, and a lightly edited transcript of our conversation follows.


Peter Fitzmaurice, the 1331 Bar and Lounge bartender of 33 years, makes the Ricky. . .a lot of parts gin or bourbon, half a lime, and soda water. (Rebecca D'Angelo - FTWP)
Ezra Klein: Your e-mail is mostly celebrating the growth of the bourbon industry in recent years. You quote a study — paid for by the bourbon industry, I should note — that says the bourbon industry in Kentucky has expanded faster than at any time since prohibition, and that it contributes $1.8 billion a year to Kentucky’s economy and employs nearly 9,000 people, directly and indirectly.” Which leaves open the question: What does Big Bourbon need from Congress?

Rep. John Yarmuth: There are two or three issues that Congress will perpetually have to deal with with regard to bourbon. One that’s very ripe is “last-in, first-out” accounting. The bourbon industry is one of several industries that has relied on that for years. What it allows you to do is pay tax on the last bottle you sell rather than the first bottle you put into barrels. Since bourbon producers have to age the product by law, if they lose that, they’re paying tax on inflated costs. LIFO has been in the law for a long time and removing it would cost some of these people tens of millions of dollars. But eliminating it has been in the president’s budget for years. It would also have a very negative effect on cheese producers and wine distillers.

Trade is another area where we’re constantly vigilant. We know the bourbon industry is a huge exporter now. There’s been dramatic increases in exports. They sell to 126 countries and grow to places like Asia. And then, in general, the issue of taxes, because bourbon is already one of the most heavily taxed products in the country, and there’s a big difference between the federal excise tax on bourbon and things like rum and vodka.

EK: Why is bourbon taxed more heavily than other spirits?

JY: I’m not exactly sure why it is. There have been preferences on things like rum to help the economies of the Virgin Islands and Puerto Rico. But I’m not sure why it’s so high on bourbon. It’s like 13 dollars per proof gallon while rum is a dollar or two dollars.

EK: Is the growth in the bourbon industry mostly domestic or international?

JY: Most of the growth has been because it’s a prized export. But you’re also seeing bourbon catching on among younger drinkers who are looking for a more adventurous experience.

EK: I was researching bourbon regulations to prepare for this interview, and I was actually surprised to see how many international protections American bourbon producers have. Canada mandates that all products sold under the name “bourbon” come from America. So does the European Union. But places like China don’t. So is there a trade issue here, or any problems with Chinese bourbon piracy, where they’re selling a lot of fake Jim Beam?

JY: That’s not one the distillers have actually raised with us. I don’t think China is one of the biggest markets, so I don’t think pirating has been much of an issue.

EK: How about domestically? I was surprised to see how strict the legal regulations around bourbon production are. Do many producers try to slip under the wire?

JY: They’ve been pretty easy to enforce. Of course, Kentucky is pretty vigilant about that. Bourbon has to be aged in charred white oak barrels. They need to be new not used. Other states are now getting into it, too. Iowa is one. But Kentucky has always said you can’t really make bourbon outside of Kentucky because it’s a combination of the barrels and the limestone-fed springs that give us the water. That’s our story and we’re sticking to it.

EK: So what’s your favorite kind of bourbon?

JY: That would be political suicide. [Laughs.]

EK: Then how about this: Which bourbons are currently in your office?

JY: Right now, we have Maker’s Mark, Woodford Reserve and Elijah Craig.

 
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