At the beginning of the 115th Congress, the Brewers Association (BA) was able to successfully lobby for the introduction of the Craft Beverage Modernization and Tax Reform Act (CBMTRA). Among other changes, the CBMTRA would lower the federal excise tax on the first 60,000 barrels (BBLs) produced by a craft brewery from $7/BBL to $3.50/BBL, simplify certain accounting requirements for breweries, and allows breweries that collaborate on a beer to transfer that product between their facilities without having to pay additional taxes.
As the legislative process for the Republican tax bill progressed, the provisions of the CBMTRA were included in the Senate version of the larger tax bill. Now the passage of those provisions for craft breweries hinges on the conference process and the passage and signing of the larger Republican tax bill. While the CBMTRA itself enjoyed wide bipartisan support, including 55 co-sponsors in the Senate and 301 co-sponsors in the House of Representatives, the overall tax bill to which it has been linked is an entirely different matter. The Republican tax bill passed the House of Representatives by a 227-205 party line vote and the Senate by a vote of 51-49.
Currently, the Senate Republican tax bill includes the provisions of the CBMTRA, but the House version does not. However, both bills contain provisions that may negatively impact the residents of the DC metro area. The Washington, DC area has the largest concentration of college and postgraduate educated individuals in the country, some of the highest housing prices in the country, and all three jurisdictions in the DMV levy local income taxes on their residents. Provisions in both the House and Senate bills to: (1) eliminate deductions for student loan payments, (2) severally limit deductions for mortgage interest payments, and (3) end the deduction for local and state income taxes would hit many DC metro area residents especially hard. Additionally, the Republican tax bills systematically disadvantages younger generations, especially Millennials, for the benefit of giving tax breaks to older Americans.
This sets up a direct conflict with the craft brewing industry, which continues to rely on younger Americans to fuel its growth. By the Brewers Association own numbers, 57 percent of all weekly craft beer drinkers are Millennials, and a full 81 percent of all weekly craft beer drinkers are from Generation X or younger. Additionally, the Republican tax bill presents particular problems for African Americans and other communities of color, at the same time as the Brewers Association is attempting to increase the diversity of both craft beer drinkers and those who work in the industry. In light of these tensions, DCBeer reached out to Bob Pease, Brewers Association President and CEO, to have him share his perspective on the CBMTRA and its inclusion in the broader Republican tax bill. What follow is a transcript (lightly edited for length and clarity) of that interview:
Was the BA made aware that the CBMTRA would be included as part of the overall Republican tax package when it was introduced this Congress?
To answer that specific question, no, we were not. Our champions in Congress introduced our bills in the House and Senate during the early days of the 115th Congress, and the Brewers Association worked tirelessly, with our coalition partners, to secure wide bipartisan, bicameral support. For example, the House bill introduced by Rep. Erik Paulsen has 300 House co-sponsors. The Senate bill introduced by Sen. Ron Wyden has 54 Senate co-sponsors. Support like that does not happen overnight. It’s an education process, and BA members have worked hard at it for nearly 10 years. This year the Brewers Association conducted two fly-ins where over 400 of our brewery members met with their Congressional delegations, advocating for the Craft Beverage Modernization and Tax Reform Act.
Sen. Rob Portman of Ohio, a member of the Senate Finance Committee, persuaded Chairman Hatch to incorporate the CBMTRA in the Senate bill. I think the strong bipartisan [support] likely played a part in the Chairman’s decision, in addition to the fact it is good policy that will help America’s small brewers grow their businesses and hire more workers.
Did the BA actively attempt to have the CBMTRA remain as a standalone bill?
Our expectation and hope has always been that CBMTRA would be attached to tax legislation that was being considered by the Congress. Our focus is educating Members about the importance of this legislation and why it makes sense, and trying to get it to the President so he can sign it into law.
Did the BA lobby on behalf of the Republican tax bill, understanding the other more controversial aspects of it?
We lobbied members of Congress to incorporate the CBMTRA in the larger tax reform bill. That is our obligation, as the Brewers Association, to our members, who support the CBMTRA. With over 4,200 voting brewery members, some of our members undoubtedly like or dislike other provisions of the bill that are unrelated to America’s small brewers. We are focused on the provisions that directly affect America’s small brewers.
From what I've seen, the BA has been pretty quiet about the passage of the CBMTRA's provisions in the House and Senate Republican bills, why?
I guess I would disagree with that premise a bit. The CBMTRA was only included in the Senate bill. We are now urging House conferees to the conference committee to support including CBMTRA in the conference report that reconciles the differences in the two chambers’ bills. We are very pleased and appreciative that CBMTRA was included in the Senate version. We have not been quiet about that at all. That is an enormous victory for America’s small brewers. But we know the legislative process is not complete. There is more work to do, and we are committed to doing it.
Does the BA still believe that a $3.50/BBL cut to the excise tax, plus some minor regulatory changes, is a positive reform in light of the other major tax and regulatory changes that the CBMTRA is being coupled with?
Yes, we absolutely do. We have discussed this legislation with our BA members for nearly a decade, and they overwhelmingly believe this is the right approach. If you go to the Congress and think you’re going to get 100 percent of what you want, you probably are going to be disappointed. There are other provisions in the House and Senate bills – immediate expensing for capital expenditures, for example – that we believe will benefit many small brewers.
In general, we believe that inclusion of CBMTRA in the Senate bill – and now hopefully the conference report – is a very positive step for America’s small brewers. If enacted, it will help our members expand their operations and hire more workers. It is good policy. We appreciate the strong support for the CBMTRA in Congress.
The drop to $3.50 from $7.00 per barrel, accounts for under a $.02 difference per 16 ounce pint. I understand everyone wants lower taxes, but I'm having some trouble understanding the economics here. How would such a tiny difference help or hurt the craft brewing industry?
Put differently, only a very small percentage of the BA's members are producing 60,000 barrels a year. However, even at that upper threshold the $3.50/barrel cut on excise taxes amounts to an annual savings of $210,000. That isn't chump change certainly, but the conservative estimate of revenue for those 60,000 barrels (if they were all sold at wholesale to a distributor) is $18 million. Is a 1.16% difference in revenue really impacting whether any craft brewery succeeds or not?
If the question is will the Craft Beverage Modernization and Tax Reform Act result in less expensive beer for the consumer, the answer is no. We have never positioned the bill in that manner. The bill will produce savings to breweries on an existing hard cost/expense. We believe that small and independent brewers will take that savings and reinvest that savings into their breweries. When small brewers reinvest into their brewery this allows them to produce more beer. When small brewers produce more beer they create more jobs and hire more workers. A brewery producing 1,000 BBLs will save $3,500 annually on their Federal Excise Tax. That amount allows some level of capital reinvestment into their physical plant. A brewery making 5,000 BBLs will save $17,500 annually. That allows even further investment.
Thank you to Bob Pease for taking the time to answer our questions. DCBeer will continue to follow the CBMTRA’s progress in Congress.
Greg Parnas, is a contributing writer to DC Beer and local alcoholic beverage attorney. If you'd like to discuss more about this issue, or other concerns with beer and the law, please feel free to reach him at Greg@dcbeer.com.
Image: Martin Falbisoner [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons