Beer industry's bill on hold until bigger pieces are moved

The bottle line at The Olde Mecklenburg Brewery on Yancey Road in Charlotte, N.C. (David Hinshaw/Charlotte Observer/TNS)
The bottle line at The Olde Mecklenburg Brewery on Yancey Road in Charlotte, N.C. (David Hinshaw/Charlotte Observer/TNS)

Credit: Davie Hinshaw

Credit: Davie Hinshaw

The beer industry, from the smallest craft brewers to the giant Anheuser-Bush InBev, is behind a long-awaited rewrite of the federal tax code on beer. More than half the members of the U.S. House have signed on as co-sponsors of a bipartisan bill to do that, and nearly half the U.S. Senate has put its name on that body's version.

So why hasn't it happened?

Like many other pieces of legislation in Washington during the first five months of Donald Trump's presidency, a few big pieces have to move first before anything like the beer bill can follow.

Primarily, that is health care reform and what it might do to taxes embedded in the Affordable Care Act; Trump's ambitious infrastructure improvement package and the possible tax consequences there; and a comprehensive rewrite of the federal tax code itself, which Republicans have promised and are pushing as a way to lower taxes and stimulate the economy.

"Together, the three pillars of infrastructure, tax reform, and repeal and replace of Obamacare are key to reaching the president's goal of a booming and vibrant American economy, and the administration is going to continue to work every day to turn the president's promises into policies," White House Press Secretary Sean Spicer said recently.

Rank-and-file members, like Rep. Mike Bost, R-Ill., say that while they are optimistic that some sort of tax-reform package can pass this Congress, the uncertainty of what that package could be is affecting specific remedies that members on both sides of the political aisle support.

"Why do other taxation when we are looking at changing the system?" said Bost, who has signed onto the House version of the beer-tax reform bill, describing the mood. "I do see a lot of that happening."

Meanwhile, the beer industry, which is also waiting federal action on alleged aluminum dumping in the U.S. by Chinese manufacturers, is moving along in a climate of uncertainty.

"An outdated tax code is preventing the entire beer industry from reaching our full economic potential," said Doug Bailey, vice president of industry affairs for the Anheuser-Busch Companies, that division's top lobbyist here.

"Beer is responsible for generating $48.5 billion in tax revenue, with $5.4 billion alone in beer-specific excise taxes," said Bailey, who accompanied an iconic Budweiser Clydesdale at pregame ceremonies at the emotional Congressional Baseball Game last week.

"We need this legislation to give all large and small brewers, importers and suppliers the relief they need to grow their operations to the benefit of the American economy," he said. "We'll continue to work with the rest of the industry to educate Congress about the urgent need to pass this legislation."

"This legislation" is supported by both the Beer Institute, which represents the big brewers, and the Brewers Association, which represents the craft-brew industry that has exploded over the last two decades.

The measure would maintain the federal excise tax of $18 per barrel on every barrel of beer over 6 million produced by a single brewer. It would reduce that tax to $16 a barrel for the first 6 million barrels while reducing the tax to $3.50 per barrel on the first 60,000 barrels produced by any brewer that makes under 2 million barrels of beer a year.

The intent is to stimulate the small-producer sector and beer production in the U.S., while still maintaining revenue to the U.S. Treasury. The bill would also ease federal restrictions on ingredients that can be added to beer, and allow small, independent brewers to collaborate on new beers by giving them the flexibility to transfer beer between breweries without federal tax consequences.

"This is an industry driven largely by small business men and women, and the last thing Washington should do is get in the way," said Sen. Roy Blunt, R-Mo., when he and Sen. Ron Wyden, D-Ore., introduced the Senate version in January. "This bipartisan bill will help remove barriers to growth for brewers, distillers and winemakers, making it easier for them to create new jobs and bolster our state's economy."

Support for the bill shows how bipartisanship can work in Congress. The American beer industry claims to support 1.75 million jobs, contributing about $79 billion annually in wages and benefits and $263 billion overall to the U.S. economy. Supporters say that the tax structure around it needs to catch up with an industry that, until recently, was dominated by big brewers.

The bill's supporters say the tax rewrite would result in the creation of another 9,000 jobs in the first 12-18 months because of more beer-making activity.

"This bill recognizes the changes in the beer industry that have occurred over the last several decades and positively impacts brewers of all sizes," said Jim McGreevy, president and CEO of the Beer Institute. "It allows members of Congress to support brewpubs, brewers of all sizes and beer importers that contribute the most to the economy. It doesn't force anyone to pick 'winners or losers.' "

He said that "we can't predict exactly when it will pass, but when the opportunity presents itself, we've done the groundwork to make sure it happens."

On the aluminum front, however, the ground is less certain.

Trump's Commerce Department is looking at whether China has been dumping aluminum into the U.S. market. It initiated an investigation in March, and the president himself said recently action could be forthcoming on it.

A coalition of American aluminum foil producers filed a petition seeking relief "from the effects of dumped and unfairly subsidized foil on the U.S. industry," and it identified more than 230 Chinese companies it said were dumping aluminum in the U.S. in violation of trade policies.

Beverage and can industry officials have expressed concern about the impact on the cost of aluminum for cans if the administration comes down too hard.

"Any proposed trade action on can sheet aluminum could have the unintended consequence of disrupting" the beverage industry that heavily uses aluminum cans, McGreevy said. "Any proposed trade restrictions would get passed on to the brewer as the customer."

The Can Manufacturers Institute, the national trade association of the metal and composite can industry, said it is closely monitoring what Trump will do. The industry says it annually produces about 96 billion aluminum cans and aerosol containers in 33 states, Puerto Rico and American Samoa, across where 11,000 people work in 164 plants. It estimates that industry generates about $13.3 billion annually in economic activity.