A Tale of Two Tax Bills

If you’ve been spending more time cleaning tanks than reading the Washington Post recently, you might be unaware that there are currently not just one, but two bills related to beer excise tax reform making the rounds in the Capitol building.  The first, supported by the Brewers Association, is called the Small BREW Act.  The second, championed by the Beer Institute, is known as the BEER Act.  Although an uninformed observer might think that these bills are similar, they are in fact, highly different.  Their differences can be quickly summed up in two graphs.
The first graph, Figure 1, shows the total benefit (and cost to the government) of each bill, using 2012 production data.  These benefits are shown as the accumulated benefit by firm rank.  You can see that the BEER Act (total one-year cost = $1.7 billion), ends up being more than 25 times more costly than the Small BREW Act (total one-year cost = $65.2 million, or less than 1/25 of the BEER Act).

The second graph, Figure 2, shows how these benefits are distributed.  Each line shows the accumulated benefit by firm rank.  For the BEER Act, 85% of the benefits accrue to the two-largest firms (total benefit for those firms in 2012 would have been $1.4 billion).  In contrast, the benefits under the Small BREW Act accumulate far more evenly.  Collectively, the top 100 brewers aren’t at 85% of the benefits.

So in summary, the BEER Act costs 25 times what the Small BREW Act costs and gives its benefits in a highly concentrated manner to two breweries that produced 17 million fewer barrels from 2008 to 2013 and currently create 1 job for every 6,906 barrels in production.  In contrast, the Small BREW Act distributes those benefits more evenly and targets them at small brewers, who have grown by more than 11 million barrels from 2008 to 2013 and create 1 job per 766 barrels of production.  In an era of fiscal austerity and slow job growth, which one makes more sense?

The Small BREW Act:
•    For small brewers (less than 6 million barrels), recalibrates federal excise tax on first 60,000 barrels from $7 to $3.50.
•    For small brewers, reduces federal excise tax to $16 from the current rate of $18 per barrel from barrels 60,000 up to 2 million barrels.
•    No federal excise tax changes for brewers producing more than 6 million barrels.

The BEER Act:
•    Small brewers – breweries producing fewer than 2 million barrels per year – would pay $0 on the first 15,000 barrels and $3.50 on barrels 15,001 – 60,000.
•    Otherwise, brewers would $9 per barrel.  Breweries above 2 million barrels would pay the $9 per barrel on all production.

Bart Watson

December 6, 2013

Bart Watson, Chief Economist for the Brewers Association, is a stats geek and beer lover. He holds a PhD from the University of California, Berkeley, where in addition to his dissertation, he completed a comprehensive survey of Bay Area brewpubs one pint at a time.

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