The alcohol tax has been with us since the Revolutionary War and was later a device that was used to help pay for the Civil War. Honest Abe gave us the first beer tax in 1862 at $ 1 per gallon. Even Cleopatra VII imposed beer taxes on the Egyptians to pay for their wars. In early American history, 80% of the federal budget was funded by taxes on beer, wine, and whiskey. The whiskey rebellion of 1794 was the direct result of an alcohol tax that increased from $ 0.09 per gallon to $ 0.25 per gallon.
The temperance movement began in the 1780s and had an active presence until Prohibition that lasted from 1920 to 1933. The tenants of temperance were that alcohol destroyed the family, promoted abuse, destroyed the mind, drove to alcoholism and destroyed the initiative. Basically alcohol was of the devil to capture and destroy the soul of man. In the mid-1900s, the message focused on the use of taxes as a means of limiting the availability of alcohol. The theory was that cheap alcohol was the genesis of abuse by young people and was the main cause of tragedies on the roads.
Research shows that increasing excise taxes on alcohol at the federal, state and local levels will reduce consumption. Research also indicates that problem drinkers will acquire alcohol regardless of cost. So will higher excise taxes reduce the consumption of problem consumers?
Over the past two decades, there have been numerous studies that indicate some health benefits of moderate alcohol consumption. What seemed to start all the studies on the health benefits, or health dangers, of alcohol was a study published in the 1980s known as the French paradox. More recently, many US universities began researching the antioxidant component of red wine. UC Davis in California has done research on the benefits of red wine. But today, if you are averse to consuming red wine, you don’t necessarily need to consume it to reap the benefits of resveratrol, it is available as a dietary supplement.
Beer is blessed with many studies on the benefits of moderate consumption. Having written a lot about the pros and cons of alcohol consumption, my observations are that many studies have been done in the past and will continue to be more debated in the future. I remember that studies were reported as facts that were debunked in later investigations. For example, the consumption of coffee should be avoided, now it is touted as full of healthy antioxidants. Kris Gunnars writes in the “Healthline” reports: “Coffee is loaded with antioxidants and offers many benefits.
Apart from research for or against alcohol, there will never be a shortage of positions researched for or against alcohol. Prohibition was one of those instances that demonstrated that it is impossible to pass laws regulating alcohol consumption, it has been part of cultures for 10,000 years. Prohibition was a law that had good intentions and had a lot of supportive research that promoted the good for society; It failed for many health, social, cultural, and logical reasons.
The December 2020 extension of the 2017 changes to the federal excise law has some benefits for craft beer producers. Generally, the Craft Beverage Modernization and Tax Reform Act (CBMTRA) will have minimal impact on the federal budget. Currently, the government receives approximately $ 1 billion per month in excise duties according to Alcohol-related problems and solutions. For beer, federal tax applies to kegs (31 US gallons) distributed / withdrawn.
Focusing on beer and not wine and spirits. The excise duty on beer going forward will remain at $ 3.50 per barrel for the production of up to 60,000 barrels removed in a calendar year, or let’s call it distributed. Over 60,000 barrels up to 2,000,000 the federal excise tax is $ 16.00 per barrel. To add perspective to CBMTRA’s new bill, the Bud Light band accounted for 30 million barrels sold in 2018.
The TTB (Tax and Commerce Office) assumes that the equivalent alcohol content in beer, wine and spirits is:
At 12 oz. can or bottle of regular beer (=) A 5 oz. dinner wine glass (=) A 1.5 oz. shot of 80 test distillates. The beer is a bargain from a low tax standpoint. Consumers of spirits will pay 2.5 times more in excise duty than a consumer of beer.
But the federal excise tax isn’t the end of the tax saga – states and some cities and counties get their bite out of the tax apple too. These state and local entities add your excise taxes and then add your sales taxes. Each state has its own tax laws in addition to the federal ones. Of the roughly 8,700 craft breweries, 99% produce fewer than 60,000 barrels in a calendar year, meaning that only about 50 craft breweries produce more. Basically the reduced federal excise tax from 2018, which is now permanent, helped the small producer. Together, the new tax bill saves all craft brewers approximately $ 80 million per year. (A shout out to the Brewers Association for their decades of work at CBMTRA.)
You rarely notice a reduction in federal excise tax through a reduction in prices. Beer prices appear to be inelastic, as decreasing or increasing prices do not appear to affect purchasing trends. It will be interesting to see if cash-strapped states and cities take advantage of a permanently lowered federal beer tax to increase their beer taxes, as well as taxes on wine and spirits.
Today, taxes bite off a 12 oz. beer is more than 40% of the retail price in a grocery store, depending on Alcohol-related problems and solutions. The state with the highest tax on all alcoholic beverages is Tennessee. Colorado tips the scales at the lower end of the tax scale.
Here is a sample summary of the taxes the consumer pays for beer: (Source: Sale-Tax.com July 2020)
Federal consumption tax $ 3.50 / barrel $ 0.12 / gal.
Here. Special tax $ 1.29 / gal.
Wholesale tax per box $ 5.36 / box
State sales tax (9,250% paid on sale.
Federal excise tax $ 0.12 / gal.
Illinois Beer Tax $ 0.23 / gal.
Chicago Beer Tax $ 0.29 / gal.
Cook County Tax $ 0.06 / gal.
State Sales Tax (10.25%) Paid at time of sale.
Some interesting facts:
There are alcoholic beverage distribution monopolies in Utah and Vermont and some other states. They are monopolies because the state is the only seller of beverages.
The alcohol consumption tax is a very regressive tax, plus a burden on low-income people.
For the same amount of alcohol in beer / wine / spirits, the tax on spirits represents half the cost of the drink and exceeds the beer tax by approximately 2 times.
Almost all states require alcoholic beverages to be distributed by state and federal licensed distributors through the “Three-Tier Distribution” system. California and some other states allow self-distribution, but these include some restrictive rules.
Moderate beer consumption offers some research results that claim to provide specific health benefits. But be prepared for counterclaims.
Taxes on beer, wine or spirits are confusing. Each state is different in the way they impose sales or excise taxes. Some states go further by raising excise taxes relative to ABV (alcohol by volume) – higher alcohol content adds additional taxes. Other states, like Illinois, allow cities and counties to impose their own taxes on beer sales.
With the repeal of the 21st Amendment, states were given control over how beer, wine, and spirits were distributed within their state. The three-tier distribution system was part of that agreement that allowed states to generate tax revenue. Technically, the Three Level Distribution system allows monopolies through the protection of the Beer Franchise Law. Generally, beer franchise laws are intended to protect distributors from the harsh actions of brewers. Most of these laws do not consider the needs of small craft brewers in today’s market.