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The New York Times - Riding Wave of Popularity, Craft Brewers Ask Congress for a Tax Cut

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Location: Washington, DC

By Andrew Siddons

They came to an opening night beer blast at the National Air and Space Museum, 4,000 strong in baseball caps and T-shirts, to look at the Wright Brothers' airplane and drink Citizen by DC Brau, which also makes a wryly named hometown brew, Corruption.

Craft beer brewers marched on Washington this week for their industry's first conference in the nation's capital. They were there to engage in a local pastime that goes pint in hand with drinking: lobbying. As part of the conference, hundreds of small-scale brewers met with Congressional staff members to press for a tax cut that they say would make it easier for them to brew more beer and hire more workers.

"For every 31 gallons that we brew, $7 goes to Uncle Sam," said Jeff Hancock, a co-founder of DC Brau, one of five craft breweries that have opened in the District of Columbia and its close suburbs in the last two years, joining dozens more in the rest of Virginia and Maryland.

Washington is just one of many places where craft brewing is booming.

"We are the victims of our own success," said Patrick Conway, owner of the Great Lakes Brewing Company in Cleveland. Mr. Conway brought a delegation of 12 employees to Washington to network and publicize his brews with tap takeovers at local bars. "We're always being courted by distributors," he said. "It's not our intention to sell in every state, but we are flattered."

The Brewers Association, which organized the conference, says 409 small breweries and brew pubs opened in the United States in 2012, up 18.5 percent from the year before. Craft beer's success defies the economic conditions businesses have faced since the recession, largely because it is considered an affordable luxury.

"Beer is sort of a recession-proof industry," said Jill McCluskey, a professor of agricultural economics at Washington State University. "In bad economic times, it's something that people can still afford."

With overall beer sales up 1 percent in 2012 after shrinking by about the same margin in 2011, most of the growth has been among specialty brewers. Their share of the market grew to 6.5 percent in 2012, from 5.7 percent in 2011. The $10.2 billion spent on craft beer represented 10.2 percent of money spent on all beer in 2012.

The small beer makers were out in full force at the Walter E. Washington Convention Center, the site of the Craft Brewers Conference, where they occupied 240,000 square feet, more than four football fields, for their trade show. Hop growers and malt makers began serving beers that used their products at 11:30 a.m. on Wednesday and Thursday while hundreds of the industry's suppliers displayed fermenters, tap handles and neon bar signs.

The growth has not been lost on politicians. The bipartisan House Small Brewers Caucus, which has 116 members from 35 states, has introduced the Small Brewer Reinvestment and Expanding Workforce Act, or Small BREW Act.

Commercial beer makers pay a federal tax on every barrel of beer they produce. It is a progressive tax: small breweries, producing fewer than two million barrels a year, pay $7 on their first 60,000 barrels. For every 31-gallon barrel above 60,000, they pay $18. Only about 100 craft breweries in the United States produce more than 15,000 barrels a year. About 95 percent of craft breweries and brew pubs produce less than that. Bigger brewers, like Anheuser-Busch InBev, which produced 98.5 million barrels in 2011, pay $18 for every barrel.

The Small BREW Act would reduce the tax on the first 60,000 barrels to $3.50. For every barrel beyond 60,000 but before two million, the tax would be $16. After two million, breweries would pay the full $18 tax. Any brewery that produces fewer than six million barrels a year -- which includes the bigger craft players, like the Boston Beer Company, maker of Samuel Adams, which turned out 2.7 million barrels last year -- would be eligible for the tax reduction.

Not everyone thinks the tax cut would be a good thing. The current tax levels were put in place in 1991 and have not changed since then. A rate that kept pace with inflation would make the taxes closer to $12 for small brewers and $30 for the big beer makers.

"The taxes that are included in the price of the beer do not begin to pay for the social costs of drinking," said Phillip J. Cook, a professor of economics and public policy at Duke University, who thinks the failure to keep up with inflation means beer is now too cheap. "It would be reasonable to let consumers decide what they wanted to drink and not to foster this segment of this particular industry through this kind of industrial policy or tax policy."

A report on reducing the nation's budget deficit from the Center for American Progress suggests raising the excise tax to about $50 a barrel of beer regardless of the brewery's size, which would bring in billions of dollars in additional revenue. If the Small BREW Act were to pass, it would cost the government $67 million a year at current levels, according to the Brewers Association.

Representative Jim Gerlach, a Pennsylvania Republican whose state is home to more than 100 small breweries, introduced the bill with Representative Richard E. Neal, a Massachusetts Democrat. Mr. Gerlach said the tax cut would have a positive economic impact because the brewers would use the windfall to expand.

"They take every bit of loose change that they can get and plow it back into their operations," he said.

The economic impact on small brewers could be significant. But in most of Congress it is viewed as little more than a "rounding error," Bob Pease, the chief lobbyist for the Brewers' Association, said. The tax has little chance of being considered outside of broader tax reform legislation, he added.

Even without the tax cut, Mr. Pease says he thinks the growth of the craft beer industry is set to continue.

"They are going to hire people whether or not the bill passes," he said. There are more than 1,200 breweries in the planning stages; if those all went into business it would increase by more than 50 percent the 2,347 brew pubs and breweries currently operating.

But the growth of the industry has been so explosive that some in the industry now say that a slowdown is inevitable, regardless of what happens on the tax front.

"Eventually," said Herbert Sachs, the president of Saxco International, a company that makes glass bottles for the beer industry, "that ends in too much beer sloshing around."


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