On November 2, the House of Representatives released its proposed tax bill – the Tax Cuts and Jobs Act. A few days later, the Senate released its own version. Both were met with significant media scrutiny. Both contain items which are likely to benefit some taxpayers while harming others. And both – at least from the perspective of small distillers – are disappointing. Because neither of them includes the tax relief for the industry that is now supported by a bipartisan majority of both the house and the senate.
As described previously, the Craft Beverage Modernization and Tax Reform Act contains a number of provisions which would be very helpful for this industry. Chief among those would be the reduction in the federal excise tax on distilled spirits down to $2.70 per proof gallon for the first 100,000 proof gallons of distilled spirits removed from bond during any given year. Under current law, the federal excise tax is $13.50 per proof gallon (starting with the very first gallon).
The benefit to the industry which would result from this change could be dramatic. Many smaller distillers – currently operating in the red – would become immediately profitable. This would allow them to expand their production – bringing the potential benefits not only of additional jobs at those distilleries, but also additional support for local farmers growing crops that are ultimately fermented and distilled and incremental benefits throughout the rest of the supply chain. Consumers would ultimately benefit too, as reducing the cost of operating in the market would allow more distilleries to launch, increasing competition and fostering innovation in this space.
So what’s the deal? Why wasn’t the bill included in the tax plan of either the House or the Senate?
Well it isn’t because the idea is unpopular. Regular readers will know here at HoochLaw’s galactic headquarters we’ve been tracking those members of congress that have signed on as co-sponsors of the bill. As of the date of this post, the bill has 295 signatories in the House (almost 68%) and 53 in the Senate (conveniently, 53% exactly). So the bill has strong bipartisan support.
So, again, what’s preventing progress?
In a discussion with DISCUS President Kraig Naasz a few weeks back, I asked him whether he thought there was a chance that the bill could be pushed forward without inclusion in the (then) upcoming Republican tax bill. He thought this was unlikely, if only because the Republicans in Congress were devoting so much attention to the broader topic of tax reform that they would not have any resources left to devote to this bill on a stand-alone basis. At that same time, I expressed my concern to Naasz that if the bill were included in a Republican tax plan it would likely lose the support of those Democrats who had signed on simply because they could not support the passage of the rest of the tax reform proposal.
But now that we’re here – and the bill has not been included as part of the tax reform proposal – it feels like we may need to revisit that issue. If tax reform has any chance of passing (which feels uncertain at best) and the bill can be inserted into that legislation then by all means DISCUS and the ACSA should continue to push for that result. But if the bill isn’t going to make it into the tax plan, then we need to find a way to move it through Congress on a stand-alone basis.