Call it the craft-beer stimulus plan. Small breweries are hoping that before Congress adjourns for the November elections, House lawmakers will take up a bill that would dramatically reduce the excise tax on their products. That, they say, would free up cash for expansion and hiring.
All small businesses covet tax cuts, but not all face the same tax burdens as craft breweries. Because the excise tax is levied on the production, rather than the sale, of beer, companies pay taxes even before their products are shipped. Small brewers pay a $7 excise tax per barrel on the first 60,000 barrels of beer they produce. The bill would cut that tax 50 percent and lower the tax on production above 60,000 barrels from $18 to $16 per barrel. (Large brewers pay $18 for every barrel produced.) In addition to the federal excise tax, breweries are subject to state excise taxes -- and then to the standard sales and business taxes all industries face. "This bill would help put small breweries on a level playing field with other small businesses," says Leslie Henderson, owner of Lazy Magnolia Brewery in Kiln, Mississippi.
Of course, excise taxes exist for a reason, and critics of the proposal argue that lower taxes could lead to cheaper beer, increased alcohol consumption, and the problems that go with that. "We're advocating for higher excise taxes, both as a way to help reduce consumption and as a way to help cover the incredible cost that every county and state has to bear for the health and societal problems associated with alcohol," says Michele Simon, research and policy director for the Marin Institute, an alcohol-industry watchdog. What's more, "there's no evidence that cutting taxes will create jobs," she says.
In Congress, though, where tax cuts are usually notoriously divisive, the craft-beer bill has managed so far to garner solid support on both sides of the aisle. Senator John Kerry, a Democrat from Massachusetts, is sponsoring a matching bill in the Senate, along with Senator Mike Crapo, a Republican from Idaho and a Mormon who abstains from drinking but likes the bill for its job creation potential. "No matter where you visit across the country, there's a local brewery -- and the jobs that go with it," says Representative Richard Neal, a Democrat from Massachusetts and sponsor of the House bill. "These breweries do a great job of pumping life back into regions and creating tens of thousands of jobs. They also make some really good beer."
Small brewers employ nearly 100,000 workers. A Harvard University study estimates that the bill, if passed, could create more than 2,700 new jobs within 18 months and an average 375 new jobs a year for the next four years. "There's not a small brewer in the country that wouldn't say, 'I really wish I could hire,' " says Dan Kopman, co-founder of The Saint Louis Brewery, which produces 40,000 barrels a year.
The Harvard study also projects that each new job created under the beer bill would cost taxpayers $4,000, compared with the Council of Economic Advisers's estimate of $92,000 for each new job created under the Obama stimulus plan. Supporters of the bill argue that lost revenue resulting from a tax cut would be largely made up by payroll taxes generated from new hires and expanded beer production.
But that all depends on what small brewers actually do with their tax savings. "It will be our responsibility to take that money and put more people to work," says Kopman.