The alcoholic beverage industry is hoping to avoid any tax hikes this year as Congress searches for ways to pay for big tax legislation in 2025.
Republicans are hoping to extend and expand the individual tax cuts included in the 2017 overhaul, also known as the Trump tax cuts, which are set to expire at the end of 2025 under current law. But there will need to be pay-fors for the cuts, and the alcoholic beverage industry is hoping to avoid any tax hikes that could hurt small businesses across the country.
The Washington Examiner spoke to Distilled Spirits Council of the United States CEO Chris Swonger and Denzel McGuire, the group’s chief of government relations. The industry got key excise tax cuts during the 2017 tax overhaul, cuts that were later made permanent. They said their goal this year is just to ensure there are no new tax hikes for the alcohol industry.
“I think it’s mainly just making sure that we aren’t on the table for pay-fors,” McGuire said.
McGuire said the goal of not just DISCUS but other groups and companies is simply ensuring that industry leaders are telling Congress how big of a success the 2017 excise tax cuts have been and making the case that lawmakers should not raise taxes on distilleries because they are already paying a very high tax rate even with the cuts.
Swonger also noted that the beverage alcohol marketplace is still recovering to some degree after the pandemic.
“They have less expendable income,” Swonger said about consumers. “So we’ve seen the beverage alcohol marketplace constrict a little bit.”
The industry also received more bad news recently when the surgeon general called for adding warning labels to alcohol indicating it is a leading cause of preventable cancer.
During the pandemic, the industry got a bump from people having more money by not spending on things such as going to movies or restaurants, although that has shifted. Retail alcohol sales increased by 34% in the early stages of the pandemic when social distancing led to bar closures.
“We’ve seen a reset, a recalibration of that, so any kind of tax impact on our industry would be very, very punitive because the marketplace has slowed down,” the CEO said.
The alcoholic beverage industry got a shot in the arm when the 2017 tax overhaul, the Tax Cuts and Jobs Act, was enacted. The legislation lowered excise taxes for beer, wine, and spirits.
The TCJA included provisions referred to as the Craft Beverage Modernization and Tax Reform Act. Those provisions were then made permanent as part of a $1.4 trillion omnibus spending bill that was coupled with pandemic stimulus and signed into law by then-President Donald Trump in December 2020.
“There was long a desire to reduce excise taxes for alcoholic beverage manufacturers, but there was always a lot of disagreement amongst the various categories,” Brandon Arnold, executive vice president of the National Taxpayers Union, told the Washington Examiner. “So beer, wine, and spirits would all fight one another — they finally came together and agreed on a structure to reduce excise taxes across the board.”
Beer
The tax overhaul lowered excise taxes on a barrel of beer from $7 for the first 60,000 barrels and $18 per barrel thereafter to just $3.50 per barrel for the first 60,000 and $16 per barrel after that.
The Beer Institute, which represents the interests of the beer industry, noted that the industry supports 2.4 million U.S. jobs and contributes $409 billion to the nation’s economy. Because of how the excise tax cuts were designed, brewers at small businesses with under 60,000 barrels in production disproportionately benefit.
“These provisions provided much-needed certainty for brewers and beer importers, enabling them to continue innovating and meeting consumer demand,” Beer Institute CEO Brian Crawford told the Washington Examiner. “The Beer Institute supports policies that enable our members to reinvest in their businesses, hire new employees, and create America’s favorite alcoholic beverage — beer.”
Wine
Robert Koch, president and CEO of Wine Institute, said that the excise tax cuts helped boost wineries. The lower taxes particularly helped California wineries, which are the heart of the U.S. wine industry, supporting 1.1 million jobs and generating $170 billion in economic activity.
The lowered taxes affected some 4,000 wineries in California alone, according to the Wine Institute.
The tax overhaul included tax credits for wine. Specifically, the credits are $1 per wine gallon on the first 30,000 wine gallons, 90 cents on the next 100,000, and 53.5 cents on the next 620,000.
Also, the TCJA adjusted alcohol content for certain wine tax classes from 14% to 16%, meaning that wines that are 14.5%, for instance, would be taxed at a lower rate than before.
“The Craft Beverage Modernization Act has been instrumental in enabling wineries to invest in growth opportunities in a challenging environment,” Koch said in a statement to the Washington Examiner. “Whether it is new winemaking equipment, a tasting room expansion, or adding a key staff position, the excise tax savings from CBMA spurred much-needed investment.”
Spirits
Before the tax reform, the IRS applied a $13.50-per-proof gallon tax on distilled spirits such as whiskey and vodka. A proof gallon represents one gallon of spirits at 100 proof, which is equivalent to 50% alcohol by volume.
After the tax overhaul, the first 100,000 proof gallons from a distiller are only subject to a tax rate of $2.70 per proof gallon. Proof gallons between 100,000 and about 22.1 million are now taxed at $13.34 per proof gallon while gallons in excess of that are still taxed at the same $13.50.
“I’ve had the chance to visit craft distillers all around the country, and that alone has enabled them to invest back into their distillers,” Swonger said. “Many of these distilleries may have three or four, five employees at most, and that tax break is pretty significant for them.”
Jeff Quint, founder and CEO of Cedar Ridge Distillery in Iowa, told the Washington Examiner that the lowered excise taxes were a huge deal for his company.
“I can say that it is the most significant change that we’ve had the pleasure of being involved in since we started,” Quint said. “You know, a lot of consumers don’t realize the single most significant cost for a bottle of spirits is the excise taxes.”
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The changes allowed Cedar Ridge to boost its sales and marketing to grow the visibility of the brand, which sells several types of spirits, including whiskey and rum, and a variety of wines.
“I would say there are probably hundreds of distilleries operating in this country that wouldn’t be had that change not occurred,” he said.
