Before the law, small brewers were taxed $7 per barrel on the first 60,000 barrels produced, and big brewers and importers paid $18 per barrel on their first 6 million. The GOP tax law lowered the rate paid by small brewers on the first 60,000 barrels to $3.50, and dropped rates to $16 per barrel for all other brewers on their first 6 million sales.
Similarly, before the new package, tax rates for all liquor — both domestically produced and imported — stood at $13.50 per gallon. The law cuts that to $2.70 per gallon, but only for the first 100,000 gallons produced or imported. Tax rates on wineries have also been lowered, and the number of wines that qualify for lower taxes expanded.
At the end of 2019, all those tax cuts are set to expire, though Republicans have argued that many of the expiring tax breaks in their law will be extended.
The debate over the alcohol tax cut mirrors the broader fight over the tax law, which President Trump signed last month. The alcohol provision puts more money back in the hands of virtually all beer producers, cutting rates across the board. But, as with the tax law as a whole, critics say its savings are wildly uneven between big and small companies, with the largest benefits going to those already at the top of the pack.
In practice, less than 10 percent of the tax cut will wind up going to the small distilleries and breweries, according to Adam Looney, a senior fellow at the Brookings Institution who served in the Treasury Department under President Barack Obama.
That's in part because firms with smaller tax payments see smaller overall savings. A small cut in the rate paid by the biggest firms, by contrast, translates into millions in savings for them.
The new law cuts alcohol tax revenue by $4.2 billion over two years, according to Congress's Joint Committee on Taxation. But breweries that sell 60,000 barrels per year or fewer are slated for, at most, $80 million in annual savings under the bill. That suggests JCT expects large companies to reap a huge financial reward, possibly through new loopholes created by the bill in what constitutes a “small” or “craft” brewery. (Looney says that the tax break is also not going to small distillers, who only account for a tiny fraction of federal alcohol tax revenue.)
“The bill as a whole is being described as a targeted benefit for small alcohol producers, but it’s not,” Looney said. “The vast majority of the benefits of this tax cut does not accrue to small brewers.”
The beer lobby has said the provision will allow small craft breweries to hire new employees and buy more equipment that will allow them to expand operations. Industry-backed studies of similar legislation found that it would lead to the creation of thousands of new jobs, in the expectation that owners plow their savings back into their businesses.
“Large breweries see no cut on a huge percentage of their production, whereas small brewers get a 50 percent cut on all of theirs,” said Bart Watson, chief economist at the Brewers Association, an industry group that helped push through the measure. “It’s a lot of money in absolute terms [for the big manufacturers], but it’s small in terms of rates.”
Overall, the new tax law centers on a dramatic cut in the corporate tax rate, the reduction of the estate tax paid by only the wealthiest Americans, and the repeal of the Affordable Care Act’s individual mandate, which the Congressional Budget Office says will lead to 14 million fewer Americans having health insurance. About 80 percent of Americans are set to get tax relief under the law, although the legilslation's tax cuts for individuals expire over time.
Unlike the tax law overall, the alcohol tax provision has bipartisan origins. At the urging of Sen. Rob Portman (R-Ohio), the final tax package included an amendment based on a bipartisan bill that had been spearheaded by Sen. Ron Wyden (D-Ore.), with Democratic and Republican co-sponsors in both chambers of Congress. A spokesman for Wyden confirmed that the alcohol provisions in the final law were essentially the same as those in Wyden’s bill — although all of the relief for alcohol producers is scheduled to expire in two years. (The Wyden bill gave federal agencies much more time to prepare for the bill's implementation.)
The brewers themselves are careful not to overstate the rewards of the cut, noting their expansions won’t increase the number of breweries in existence or make the cost of their beer any cheaper.
“We never positioned this as cheaper beer for the beer drinker — this was always about helping the small business owner have additional capital to invest in his or her brewery and hire more workers,” said Bob Pease, chief executive of the Brewers Association.
For some midsize breweries, the rewards could be substantial. Steve Hindy, a founder of Brooklyn Brewery, says the cut will save his business about $400,000 next year — money that will be used for new employees and new equipment.
But Anheuser-Busch InBev will see its excise tax load fall by approximately $12 million. Meanwhile, the Middle Ages Brewing Company, which employs about 10 people in central New York, expects its tax burden to drop by $10,000 next year.
“It’s not insignificant, but the smaller you are the less significant it is,” said Isaac Rubenstein, vice president of Middle Ages.
Other experts noted that it wasn’t clear why the federal government needed to cut taxes on this slice of industry. The number of small breweries skyrocketed from 1,653 in 2009 to 5,301 in 2016, according to the Brewers Association.
“These guys are going to make an extra amount of money, which is incredible,” said Trey Malone, an economist at Michigan State University who has researched the beer industry. “It’s one of the industries booming right now anyway.”