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Give Economy Hops With Microbrew Tax Cut: Christian DeBenedetti

By Christian DeBenedetti
January 04, 2012 7:00 PM EST
Illustration by Mikey Burton
Illustration by Mikey Burton

With the president and Congress mired in partisan backbiting, many lawmakers may be tempted to retreat to a dark room for a cold beer. They would do well to make that a craft beer.

Various high-ranking senators and representatives have been working on a pair of bills that not only would make craft brewing more competitive, but may also make a small contribution to helping relieve the nation’s grinding unemployment.

This legislation would roll back excise taxes on small brewing companies by anywhere from 11 percent to 50 percent. The current tax rates, adopted in 1976 before the rise of micro- and craft breweries in the 1990s, have never been updated, requiring many brewers to pay levies calibrated for much larger operations once considered small.

Lowering rates on these modern small brewers, which can barely keep up with demand, would help one very bright spot in the American economy.

The U.S. now has more than 1,900 breweries with a total of 100,000 domestic employees, earning an estimated $3 billion in wages and benefits, according to the Brewers Association, a trade group of beermakers, distributors and suppliers. And 855 new craft breweries are in various stages of planning around the country.

Most craft breweries are all-American success stories, creating local jobs while bringing a bit of affordable joy to many a Main Street. Overall U.S. beer sales have declined slightly, but beer-loving Americans are drinking better. Craft beer sales by value rose 15 percent in the first half of 2011, while volume leapt 14 percent during the same period.

Neighborhood Breweries

Like bread, coffee, cheese and other dietary staples, beer is going local. The average American now lives within 10 miles of a craft brewery, which typically employs its neighbors and often recycles spent grain for use as feed on nearby farms.

In early November, a craft-brew tasting at the Rayburn House Office Building in Washington featured brands from across the U.S. There was the American Brewing Co., which opened in early 2011 in Edmonds, Washington. Another booth featured Saint Louis Brewery Inc., a craft brewer in Budweiser-soaked Missouri. The tasting event offered a reminder of the nation’s beery past. In 1872, the U.S. had 4,000 breweries. By the early 1970s, the number was down to 50, so the craft brew awakening represents a return to form.

The push for changes in the tax code is being led by the Brewers Association and a group of brewers and brewery employees, including Patrick Conway, a founder of Cleveland- based Great Lakes Brewing Co.; Greg Hardman, of Cincinnati-based Christian Moerlein Brewing Co.; and Steve Hindy, president of Brooklyn Brewery.

At last count, the Small Brewer Reinvestment and Expanding Workforce Act, or Small BREW, had 147 co-sponsors on both sides of the aisle in the House of Representatives. Companion legislation in the Senate had 37 bipartisan co-sponsors.

The bills would update the tax code, which was written long before the popularization of craft beer. Small brewers with annual production of as much as 60,000 barrels would have their tax rate cut by 50 percent to $3.50 a barrel, while bigger brewers making as many as 2 million barrels would have their taxes lowered by $2 to $16 a barrel.

Another goal of the legislation is to raise the federal definition of small brewery from 2 million barrels a year to as much as 6 million barrels. This would help keep companies such as Boston Beer Co. (SAM) and D.G. Yuengling (0047953D) & Son Inc. within the boundaries of the small-brewery movement. Each sells roughly a 50th of the 100 million barrels that Anheuser-Busch InBev NV (BUD) sells each year in the U.S.

Beer-Making Jobs

Because small breweries lack economies of scale and must pay more for raw materials, packaging, distribution and marketing, they could use the tax savings to increase production and add jobs. A study published in April 2011 by John Friedman of Harvard University found the legislation could stimulate $865 million in economic activity over five years, adding more than 4,400 jobs in the first year and an average of 300 each year after that.

The industry already generates more than $2.3 billion in federal, state and local taxes. And while the cuts would reduce tax revenue, the losses would be more than offset by new payroll and income levies.

Craft brewing is rejuvenating communities and local economies. Consider, for example, the Lazy Magnolia Brewing Co., which started in 2003 in Kiln, Mississippi, population 2,000. Named for the flowers that grow along the banks of the nearby Jordan River and, in particular, one malnourished specimen near the back porch of the couple who founded the business, Lazy Magnolia uses in its brewing process local ingredients -- like sweet potatoes, roasted pecans and honey. It now has 20 employees.

The tax savings would make it easier for similar breweries to expand, which would help lift local construction, distribution and hospitality industries. Give Americans a craft beer. The jobs will follow.

(Christian DeBenedetti is the author of the recently published “The Great American Ale Trail: The Craft Beer Lover’s Guide to the Best Watering Holes in the Nation.” The opinions expressed are his own.)

To contact the author of this article: Christian DeBenedetti at christiandebenedetti@mac.com

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net

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