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Stupid Is As Stupid Does

Today, the Senate Finance Committee released a 41-page report entitled Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options.

When looking it over, one can’t help being reminded of the aphorism so often spouted by Forest Gump in Winston Groom’s wonderful anti-war novel of the same name: “stupid is as stupid does.” Essentially it’s a variation of similar sayings stretching back to at least the 14th century, where “x’ is as “x” does. What it means is simply that appearances don’t matter as much as deed and actions. In the example “beauty is as beauty does” it means that a person blessed with good looks is not beautiful unless the person’s beautiful inside, that is their actions make them a beautiful person. In Groom’s aphorism, he means that if someone does something incredibly stupid, then they’re a stupid person. In the case of the novel, Groom was seemingly an idiot, but in reality his actions belied that impression. [For the record, the film sucked, but the book is a work of genius; wonderful language, a dark comedy with a strong antiwar message that was neutered by the feel good film.] In the case of the Senate’s stupid actions today, they’ve shown that appearing to do something is far more important than actually doing anything effective or meaningful. Again, as I wrote last week, it comes down to what’s the best strategy for staying in office.

So what might lead me to so emphatically call the U.S. Senate’s actions stupid? In their proposal they’re advising that the federal excise tax on beer, currently $18 per barrel, be raised to $45, nearly tripling it. This came out of suggestions made at the Senate round table which I discussed last week. Here’s the language of the proposal, which begins at page 34:

SECTION IV: Lifestyle Related Revenue Raisers

Impose a Uniform Alcohol Excise Tax

Current Law

An excise tax is imposed on all distilled spirits, wine, and beer produced in, or imported into, the United States. The tax liability legally comes into existence the moment the alcohol is produced or imported but payment of the tax is not required until a subsequent withdrawal or removal from the distillery, winery, brewery, or, in the case of an imported product, from customs custody or bond.

Both the tax rates and the volumetric measures on which the taxes are imposed differ depending on the type of beverage. Taxes are lower on the alcohol content of beer and still wines than on the alcohol content of distilled spirits and naturally sparkling wines. Distilled spirits, wine, and beer produced or imported into the United States are taxed at the
following rates per specified volumetric measure:

On a per ounce basis, distilled spirits are taxed at roughly 21 cents per ounce of alcohol, still wines at 8 cents per ounce of alcohol (assuming an average alcohol content of 11 percent), and beer at 10 cents per ounce of alcohol (assuming an average alcohol content of 4.5 percent).

Proposed Option

This policy option contemplates imposing a uniform tax based on the alcohol content contained in the product. The excise tax under the proposal is imposed at a rate of $16 per proof gallon on all alcoholic beverages.62

As under present law, domestic wineries having aggregate annual production not exceeding 250,000 gallons would be entitled to a tax credit on the first 100,000 gallons of wine (other than champagne and other sparkling wines) removed in a calendar year. In a manner similar to present law, for domestic brewers producing less than two million barrels of beer during the calendar year, the proposal imposes a reduced rate of tax on the first 60,000 barrels of beer removed each year.

56 A “proof gallon” is a U.S. liquid gallon of proof spirits, or the alcoholic equivalent thereof. Generally a proof gallon is a U.S. liquid gallon consisting of 50 percent alcohol. On lesser quantities, the tax is paid proportionately. Credits are allowed for wine content and flavors content of distilled spirits. Sec. 5010.

57 Small domestic wine producers (i.e., those producing not more than 250,000 wine gallons in a calendar year) are allowed a credit of $0.90 per wine gallon ($0.056 per wine gallon in the case of hard cider) on the first 100,000 wine gallons (other than champagne and other sparkling wines) removed. The credit is reduced by one percent for each 1,000 wine gallons produced in excess of 150,000 wine gallons per calendar year.

58 A “wine gallon” is a U.S. gallon of liquid measure equivalent to the volume of 231 cubic inches. On lesser quantities, the tax is paid proportionately.

59 Sec. 5001(a)(4).

60 A small domestic brewer (one who produces not more than 2 million barrels in a calendar year) is subject to a per barrel rate of $7.00 on the first 60,000 barrels produced in that year.

61 A “barrel” contains not more than 31 gallons, each gallon equivalent to the volume of 231 cubic inches. On lesser quantities, the tax is paid proportionately.

62 Because the rate of tax will not depend on the source of the alcohol, the section 5010 credit based on wine content and flavors content of distilled spirits is not necessary and would be eliminated under the proposal.

Because spirits would have its taxation changed the least, prices of wine and beer would skyrocket while liquor would remain almost the same. This would undoubtedly lead to increased sales for spirits and a disastrous sales drop off of wine, but especially beer, whose taxes would be raised the most.

The last time the federal excise tax on beer was raised, in 1991, when we in the midst of another recession, the economy bounced back but it took many years for the taxes collected on beer to return to the levels that were collected before 1991. And that was during the boom years of the Clinton administration, when we had a budget surplus. Remember those days? It makes a soiled dress seem positively quaint compared with what we’re facing today.

In Beer Business Daily’s newsletter this morning, “Jeff Becker of the Beer Institute points out that this increase would ‘threaten jobs, increase consumer costs for those least able to pay and jeopardize brewers, wholesalers, retailers, suppliers and related businesses that rely heavily on the beer industry. In 2008, members of the beer industry paid more than $41 billion in taxes at all levels of government and provided jobs to 1.9 million Americans. Any proposed tax increase would severely offset this important economic contribution.'”

And as Harry points out, even the Distilled Spirits Council of the United States (DISCUS), who in a sense has the most to gain (and has in the past supported tax equalization) should this proposal be enacted, is against it because “it would actually decrease tax revenue. ‘When the federal excise tax on spirits was raised in 1991,’ writes DISCUS, ‘tax revenues actually fell and it took 10 years before they regained their pre-1991 levels. If the tax revenue history is any guide, and the end result is hundreds of thousands more unemployed workers, you have to ask yourself what is the point?'”

Indeed, that is the question, what’s the point? Why would the Senate propose to essentially wipe out an industry to raise 0.008% of the funds needed for a $1.5 trillion health care initiative? Why would they ignore history? Why would they knowingly put forth a proposal that so obviously would lead to more unemployment, to a reduction in tax revenues (instead of raising more) and would regressively effect the poorest Americans.

I also have to laugh at the doublespeak of calling this “Lifestyle Related Revenue,” which is, one supposes, the new less politically charged way of calling it a sin tax. But it’s the same thing. If your “lifestyle” includes enjoying alcoholic beverages, then you will be punished with additional taxes, never mind that moderate consumption has been shown time and time again to have health benefits. You can’t call it lifestyle based, impose more taxation, and not have it have negative associations. It just sounds nicer, and confuses people into thinking it’s not as nasty as it is in reality.

I know this is just still a proposal, but last week we said it was just a round table and here we are only a few days later and now it’s a proposal. Who knows how fast this will move. Politicians tend to reflexively act in knee-jerk ways that give the appearance of action but with little thought to long term consequences. It’s how they — as Mel Brooks so eloquently put it in Blazing Saddles — protect their phony baloney jobs. And in this case, the long term consequences seem very dire indeed. There’s very little pay off, almost none really, and it seems obvious to anyone paying attention that the possibility of a chain reaction that would decimate the industry is very, very real. If that’s not just plain stupid, I don’t know what is.


Thanks again to Harry Schumacher and his Beer Business Daily. If you don’t already subscribe, and beer is your business, you should consider subscribing to Harry’s daily e-mail newsletter.


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