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How Trump’s tax reform push could make American liquor great again

It’s not so much drunk talk. Just look at what happened with craft beer.

The number of U.S. breweries has risen steadily,

The number of U.S. breweries has risen steadily, crashing through 1,000 by the 1990s and then through 2,000 in the 21st century -- about 1,997 more than analysts' predictions. The number now stands at more than 5,000. Photo Credit: iStock

America’s growing ranks of craft distillers think that an excise tax cut from Washington could spur unprecedented growth in their industry, putting their small-batch, traditionally made whiskeys, gins, vodkas, brandies and more into more hands and on more menus than ever.

It’s not so much drunk talk. Just look at what happened with craft beer.

In September 1976, Congress passed legislation that cut the federal excise tax on beer from $9 to $7 per barrel on the first 60,000 barrels produced, so long as a brewery produced no more than 2 million barrels annually (a 31-gallon barrel is equal to about two kegs).

When President Gerald Ford signed the bill that same month, there were well under 100 breweries in the United States, and the number was shrinking fast amid industry consolidation and the high costs of doing business for smaller players. Analysts predicted perhaps two or three American breweries by the turn of the century — probably the big players such as Anheuser-Busch, Miller and Coors.

A funny thing happened, though. The number of U.S. breweries rose steadily, crashing through 1,000 by the 1990s and then through 2,000 in the 21st century — about 1,997 more than analysts’ predictions. The number now stands at more than 5,000, the most breweries operating at any one time in the nation’s history.

The vast majority of these operations are what are called craft breweries. They each make no more than a few million barrels annually, often much, much less than that for a local or a regional consumer base. And although they face challenges such as macro-breweries acquiring some of them, these craft breweries are by and large thriving. Together they have made America the delicious envy of the beer-making world in terms of style and experimentation.

Craft distillers would love to follow in their footsteps. That is why a group representing smaller spirits producers is trying to get Congress and the Trump administration to cut the excise tax on smaller runs of whiskey, gin, vodka and more, like another government did for smaller amounts of beer 41 years ago.

It would be a somewhat ironic role for President Donald Trump to play — one of America’s few teetotaler presidents whose political hero nonetheless is early whiskey geek President Andrew Jackson. Plus, let’s face it, the consumer audience for craft spirits, at least right now, is made up mostly of urban professionals (and/or hipsters) with money to spend — not exactly part of Trump’s base.

Nevertheless, the results of his signature on such a tax cut could be as invigorating for craft spirits as Ford’s was for craft beer.

There are well over 1,300 U.S. craft distillers, according to the American Craft Spirits Association, the four-year-old trade group leading the tax-cut charge. The group defines craft distillers mainly by their size — no more than 750,000 taxable gallons of spirits produced yearly — and their independent ownership.

The number is impressive, considering that there were perhaps a couple of dozen craft distilleries 20 years ago. But given the number of craft breweries and the fact that they share many of the same bibulous clientele — and the same certain kind of bearded, bro-y vibe — there could be so many more. (And never mind that there are about 8,700 U.S. wineries, a lot of those pretty small, too.)

What’s holding growth back is the federal excise tax. Smaller brewers pay that $7-per-barrel tax rather than $9 on the first 60,000 beer barrels, and, under rules dating from 1991, smaller winemakers — those producing fewer than 250,000 non-sparkling gallons annually — receive a 90 percent credit on an excise tax of $1.07 per gallon for the first 100,000 gallons produced.

Meanwhile, distillers of any size, whether conglomerates producing oceans of Jim Beam and Smirnoff, or boutique start-ups crafting artisanal spirits for local sales, pay $13.50 per proof gallon.

These differences translate into a craft distiller paying six times as much in federal excise tax as a craft brewer and 17 times as much as a boutique vintner for the same amount of beverage. To balance things, the ACSA and its members want to reduce the federal excise tax to $2.70 per taxable gallon for the first 100,000 gallons produced.

The idea is part of a larger Craft Beverage Modernization and Tax Reform Act, which includes sweeteners for vintners and breweries, too, such as a further beer tax cut (and, for that matter, the first federal definition for mead, the ancient drink made from fermented honey).

The legislation has strong — and rare — bipartisan support, with dozens of co-sponsors on both sides of the aisle in both chambers. There’s also the powerful argument that the cut would benefit that most sacrosanct example for American politicians, small business, as many of these craft distilleries are mom-and-pop-like start-ups.

They also serve as a kind of research and development unit for the larger spirits industry, coming up with fresh spins on old styles and reaching new customers. It’s no coincidence that the resurgence in cocktails during the past 10 years or so happened in near-tandem with the rise of craft spirits.

Attempts at such a change have stalled before in Washington, including during the previous Congress, but America’s smaller distilleries think they have a real shot this go-round, particularly because of the bipartisan support. The biggest thing standing in their way may be that teetotaler in chief. The scandals, or at least the scandalous atmosphere, emanating from the White House might drown tax relief for craft distillers as surely as they may tank the Trump administration’s entire economic agenda for 2017.

Should craft distillers succeed, though, look for plenty more tasty artisanal tipples at your favorite local place — right behind all those colorful craft beer taps.

Acitelli is the author of “The Audacity of Hops: The History of America’s Craft Beer Revolution” and, most recently, “American Wine: A Coming-of-Age Story.”

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