I’ve been having to explain the various alcohol tax rates to people lately and once people understand them their first question tends to be “Why?” I don’t have a good answer so I figured I’d open it up to the Dope and see if there is on. Also I wanted to put this in GD because I’d like to talk about what would happen if the rates change.
Beer is taxed on the federal level at $0.58/ gallon no matter the alcohol content. Wine is taxed at $1.07 / gallon for 14% alcohol or less, $1.57/gallon for 14-21% alcohol and $3.15 / gallon for over 21% alcohol. Spirits are taxed at $13.50/gallon at 50% alcohol. If we assume that it the ethanol that is getting taxed then beer runs $18.125 - $3.22, wine runes $7.64 - $15 with spirits at $27 for a gallon of pure alcohol.
So why are the tax rates so different depending on how the alcohol is created or condensed since it’s all created through fermentation?
If we were to go to a standard tax of $15 per gallon of ethanol beer costs would go up and so would some wine but the costs for spirits would drop dramatically. What would be the other implications?
For full disclosure I own a distillery that cans cocktails at 8% alcohol and we get killed on price by the malt beverage people because if everything else was equal we would have to pay almost $2 more in taxes for a gallon of product and I have to explain this to patrons why I’m always more expensive then beer.
I cannot help im afraid. However, I live in hope that the renaissance of the US whisky industry helps smash our extortionate tax rates on whisky production and consumption here in the UK. A farsighted politician may see the potential of a booming US whisky industry.
I assume US distillers face the same problem as UK distllers with added duty on each year a whisky(e)y is left maturing. Is this indeed true?
Historically, the temperance movement tended to focus on spirits rather than beer or wine, as they were seen as more sinful due to their strength. The higher rate is a bit of a remnant of this, I think, and it probably has support from breweries and wineries that benefit from it, not to mention your neo-prohibitionist groups like MADD. A per-unit-ethanol tax probably makes more sense than the weird patchwork the U.S. has now, but when has the U.S. tax code ever focused on making sense?
ETA: I did a little research and it looks like I was wrong about MADD. Their position is that beer and wine taxes should be increased to be equal to those of spirits. That is consistent, at least.
The US doesn’t charge for ageing. Generally speaking you only pay excise taxes on spirits once you bottle them and take them out of your warehouse. The feds want you to track all of your alcohol creation so they can verify nothing is sneaking out without getting taxes but the alcohol you lose to the air doesn’t count at the end of the process. All they care about is the alcohol you take out of the back.
As far as expecting simplicity from the tax code I get that but complexity is normally added to accomplish some form of social engineering. In this case if I hand you a beer at 8% alcohol, a mimosa at 8% and a rum and come at 8% they will all be taxed differently. I don’t understand the social good that if being promoted. If we are going to high alcohol spirits being worse from a temperance point of view I could understand that but when the same volume does the same thing to your body how does the path matter?
Sometimes complexity isn’t there in service of some greater good, but is there mainly for historic/inertial reasons. It’s possible that the janky alcohol tax laws are simply because beer, wine, and liquor taxes were introduced separately, at different times, and no one cared enough to spend political capital harmonizing them.
One of the reasons sin taxes exist is to try to limit harmful behavior through higher prices. It is thought that half of the people currently were drunk when they committed their crime, for example. Other costs associated with liquor are early deaths due to liver disease, and drunken driving. If you reduce the amount of liquor being consumed you reduce some of those negative externalities. Since liquor has more alcohol than beer it is more dangerous and is taxed at a higher rate.
Of course the other reason for alcohol taxes is to raise revenue. Yes, we try to jigger around the edges for social engineering purposes, but we’re also trying to pay for B2 bombers and social security.
I think the problem with your proposal is that on the macro end of things, distilled liquor is much cheaper to make than beer or wine. Even under the current tax scheme, cheap hard liquor gives you more alcohol per dollar than cheap beer and cheap wine. Leveling those taxes out would make cheap hard liquor really cheap.
I assume the economics are very different on the microdistillery level, so maybe some re-jiggering (:)) of the rules to differentiate between large volume and small volume producers might be another approach.
I just go to my tasting room, you should come by for “happy” hour some time. It’s fun.
Ya I guess I hadn’t thought about that. Even at the macro end Jim Beam starts with basically the same ingredients as Budwiser so their cost per gallon shouldn’t be less considering the greater level of processing but where you are taking straight corn and making what amounts to industrial alcohol there are certainly minimizing their input cost and it wouldn’t surprise me if even with processing they were cheaper then some of the malt liquors.
On the other hand after doing some poking around the internet that doesn’t seem to hold up. Right now you can buy a 40 oz of malt liquor for 2.99 at 8% alcohol, Franzia Red is $9.49 for 5 liters of 13.6% alcohol, Everclear is $16.99 for 750 ml at 95%. The cheapest bang for you buck is the Franzia at $52.82 per gallon of ethanol then Everclear at $90.25 followed by OE 800 at $119.6. I’m sure there are better representatives of each category but if I was just looking to get bombed it seems boxed wine is the way to go.
There is a proposal in front of congress to give micro distillers a break on excise taxes until a volume threshold is met similar to what is currently given to wine. It seems to me though that the government could raise more money by taxing beer and wine more and spirits less due to their relative consumption rates and if the goal is to punish the sinner it seems wine should be the target.
Sorry for the delay in responding I ended up spending the day working on my still.
