By Jeff Cioletti
More than 300 craft distillers, trading partners and industry allies from 45 states spent day two of the American Craft Spirits Association (ACSA)/Distilled Spirits Council of the U.S. (DISCUS) Public Policy Conference making the case to Congress for permanent federal excise tax (FET) reform and to advocate for two other top legislative and regulatory priorities.
During nearly 200 virtual meetings with Senators and House members from both sides of the aisle, representing nearly all U.S. states, spirits producers urged support for the Craft Beverage Modernization and Tax Reform Act (CBMTRA) HR 1175 in the House and S.362 in the Senate. Additionally, attendees called for the end of trade tariffs that have been severely impacting U.S. spirits exports and asked legislators to weigh in with their concerns about a flawed proposal under review at the U.S. Department of Agriculture (USDA) and Department of Health and Human Services (HHS) to change the definition of moderate drinking for men in the U.S. Dietary Guidelines (DGA).
Federal Excise Tax Relief
The temporary reduction of the FET is set to expire on December 31, 2020, if Congress takes no further action. Initial temporary FET relief became law on January 1, 2018, when the federal tax was reduced from $13.50 to $2.70 per proof gallon on the first 100,000 gallons. The reduction passed as part of the broader Tax Cut and Jobs Act of 2017 and was originally set to expire on December 31, 2019. Following the continuous efforts of ACSA and DISCUS, Congress last December passed a one-year extension on the reduced tax rate, which will expire just three and a half months from now. The spirits industry’s main objective is to make the $2.70-per-gallon rate permanent, by convincing Congress to pass the bi-partisan CBMTRA. Senators Ron Wyden (D-OR) and Roy Blunt (R-MO) introduced the Senate version, S.362, which has the support of 74 Senators at last count. Representatives Ron Kind (D-WI) and Mike Kelly (R-WI) are behind the House version, HR 1175, and have also gained the support of three-quarters of the House.
“Not knowing what the (FET) is going to be [in January] has actually been a problem for almost a year now,” said Becky Harris, president and head distiller of Catoctin Creek Distilling Co. in Purcellville, Virginia, and president of ACSA. “When the extension was put in [in December 2019], we were already worried about what was going to happen next year. For us, this is something really urgent. We’re looking at the possibility of big investments in both our plant capacity and the number of people we’re going to be able to have to help us run that plant.”
Harris noted that the impact of higher excise taxes ripples across other industries, affecting the suppliers that rely on distilleries to survive.
“Local agriculture and local suppliers are all affected when we don’t have confidence in what our business climate is going to be,” Harris said.
The 400% excise tax increase that could happen on January 1 if Congress fails to act would make it difficult for many to remain in business, especially during a pandemic.
“Some of the larger brands use up that tax incentive in half a day,” said ACSA CEO Margie Lehrman. “Most craft distillers don’t use up that tax incentive in a year.”
And all of those difficulties are compounded by trade disputes.
The trade tariffs and retaliatory tariffs that have been enacted in the past two-plus years put a major burden on the industry before the coronavirus and spirits producers’ losses in revenue during the COVID-19 pandemic have only compounded the problem. The trade crisis began in June 2018 when the European Union imposed a 25% tariff on American whiskey in response to tariffs that the U.S. put on steel and aluminum imports. If no action is taken, that tariff will increase to 50%. The existing tariff has already reduced American whiskey exports to the EU by 39%. Since last October, the U.S. has imposed a 25% tariff on single malt Scotch whisky, Irish whiskey from Northern Ireland and certain liqueurs/cordials. Additionally, the EU has included U.S. vodka, rum and brandy on its proposed list of tariffs. The spirits industry is calling on members of Congress to call or write to U.S. Trade Representative Robert Lighthizer to urge him to negotiate an agreement with the EU and the United Kingdom securing the simultaneous removal of the 25% tariff on American whiskey and U.S. tariffs on EU and UK beverage alcohol products.
Dietary Guidelines for Americans
The newest issue the spirits industry is discussing with U.S. Senators and Representatives is a proposal to change the longstanding definition of moderate drinking contained in the U.S. Dietary Guidelines for Americans.
Since USDA and HHS issued the first DGA in 1980, the federal government has advised adults who choose to consume alcohol to do so in moderation. Since 1990, the government has defined moderation as no more than one serving per day of spirits, beer or wine for women and no more than two servings per day for men. The federal agencies update the DGA every five years and after an 18-month review process will be doing so at the end of 2020—with a proposed change that would cut the recommended limit for men in half, putting it on par with one-drink-per-day recommendation for women.
“What we’re very concerned about as an industry, is that [the proposed change] does not appear to be based on any new science,” Harris noted. “It has been just kind of slid through.”
Harris and her colleagues called upon legislators to investigate.
“The rule is that there’s supposed to be a preponderance of evidence to trigger those changes,” Harris added, and right now there does not appear to be that.”
Many craft spirits producers expressed optimism after their meetings with federal legislators today.
“It was great to speak with [Indiana] Sen. [Mike] Braun and share with him how important it is to support the Craft Beverage Modernization and Tax Reform Act,” said Jeff Wuslich, co-founder of Cardinal Spirits in Bloomington, Indiana. “As a businessman, he quickly grasped just how important this legislation is to our industry. It was nice to Zoom with him while still being able to do a distillation run!”
Molly Troupe, master distiller at Freeland Spirits in Portland, Oregon—a constituent of CMBTRA sponsor Sen. Wyden—was grateful for the opportunity to be heard from the opposite coast.
“2020 has brought a year full of uncertainties,” Troupe said. “In an industry like ours, where plans and budgets are sometimes put together years in advance, a tax increase is detrimental. Oregon distilleries are dealing with COVID, and now forest fires, and need to know that this act will be passed, preventing a 400% increase in our federal excise tax. We are so thankful for the Senators and Representatives who took time from their days to hear about the good distilleries have done in their community and the problems our industry is facing. With the Craft Modernization Act's broad support in the House and Senate, we are hopeful that this act will be extended or made permanent before the end of 2020.”
Gina Holman, founding partner of J. Carter Distillery in Waconia, Minnesota, shared similar sentiments.
“I’m grateful for all that our industry was able to accomplish during the last two days of the Public Policy Conference,” Holman said. "Thank you DISCUS and ACSA, the presenters, and elected officials for setting up a clear agenda in advance which allowed us to learn more and discuss the many challenges facing micro-distilleries across the country. The ‘fly-in’ allowed our local distilleries to connect with our Senators and their staff. We thanked them for their support, and it allowed us to share our stories, explain how the FET reduction has impacted our business strategies, and the impact our businesses have on many other industries and our local community.”
Ryan Friesen, head distiller at Blinking Owl Distillery in Santa Ana, California, expressed pride in ACSA’s and DISCUS’s joint effort to work toward a shared goal.
“Pound for pound [the virtual format] might actually be a better way to engage our legislators,” Friesen said. “What we accomplished in two to four hours might have taken two days and an expensive fly-in to D.C.”
Not only did the Public Policy Conference enable spirits producers to meet legislators face to face from great distances through the wonders of technology, the event also provided some face time with the regulatory side of the federal government during Tuesday’s panel with leadership at the U.S. Alcohol and Tobacco Tax & Trade Bureau (TTB). Administrator Mary Ryan emphasized TTB’s desire to maintain a positive working relationship with the industry. “Our goal is to have a regulatory footprint that’s as narrowly tailored as it can be and as intuitive as we can make it,” Ryan said. “I don’t think the alcohol industry objects to being regulated, but the regulatory structure needs to keep pace with, and allow you to adjust to, the environment and realities you are facing. ... We’re looking to reduce the burdens on the industry, make compliance easier, and hasten our service as we enforce our mission.”
The 2020 Public Policy Conference concluded with a toast, led by ACSA and DISCUS, as well as a panel of distinguished guests that included Deborah Brenner, founder and CEO of Women of the Vine & Spirits; industry expert Peggy Noe Stevens, author of “Which Fork Do I Use with My Bourbon,” and Bill Thomas, owner of the Jack Rose Dining Saloon in Washington, D.C.
“Yesterday when we were briefing you, we talked about expectations for today and I think, for the most part, you’d agree that it worked and it worked well,” ACSA’s Lehrman told attendees at the evening virtual gathering. “I think we pushed the ball forward and I think we moved it.”
DISCUS president and CEO Chris Swonger also expressed his gratitude toward all who participated in the two-day event.
“A united industry is a powerful industry on these issues,” Swonger said. “We’ve got a lot of work to do between now and the end of the year, but today and yesterday was a big success.”
To keep the momentum of the past two days going, please continue to contact your Senators and Representatives and urge them to support permanent FET relief and an end to trade tariffs. Additionally, demand that they they work to prevent the proposed change to the definition of moderation in the Dietary Guidelines for Americans.