The New Beer Tax Proposal is an Explicit Attack on Breweries
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A couple days ago, two members of the Oregon House introduced HB 3296, an astounding piece of legislation that would increase the excise tax paid on a barrel of beer from $2.60 to $72.60. The tax is nearly double the next highest state’s, well over ten times the national median—and of course a 28-fold increase over current levels. This comes as the beer industry struggles through a global pandemic and less than a month after a recent cannabis tax went on the books to treat drug addiction—one even legislators expect to be “oversaturated with revenue.”
Proponents and those sympathetic with alcohol abuse point out how the state has a right to recoup the costs of treating the consequences of abuse and addiction, and that Oregon has fallen behind in this regard. They point out that Oregon’s current beer tax is one of the lowest in the nation and hasn’t been raised in decades. And they’re right on all counts. But here’s the really big question: why aren’t proponents raising the tax so it’s in line with other states (a three- or four-fold increase, as opposed to 28)? Based on the rhetoric of sponsors and the substance of the bill itself, it’s hard not to conclude that crippling alcohol producers is a central feature of the bill.
TN: $1.29
AK: $1.07
HI: $.93
NC: $.61
AL: $.53
US Median: $.20
OR: $2.34 (proposed)
We have been down this road before. In the 2007 and 2009 sessions, legislators pushed for massive beer tax hikes (though substantially smaller than this iteration), minimizing the effect on businesses and consumers, and exaggerating harm to justify the tax. As in those cases, proponents are being dishonest in this latest proposal, concealing both their own goals and the effects of the law. And they even attempt to select their own foes—demonizing AB InBev in an initial PR sortie meant to distract from the massive harm it would do to local businesses.
I know tax law bores readers to tears, especially outside Oregon, so I’ll make the case as concisely as possible. If this thing gets out of committee, we can go more deeply. However, there are a few key pieces of data voters, legislators, and the media should understand regarding this bill.
Don’t Fall For Lies About Consumer Costs
The tax is enormous, and proponents minimize how it would impact prices. Currently the highest tax in the US is in Alaska, at $1.29 a gallon [correction: TN is the highest at $1.29]. The proposal would raise Oregon’s tax to $2.34 a gallon. That’s nearly two cents an ounce. Yet that doesn’t mean thirty cents a pint as proponents claim. By the time you buy a pint in a restaurant, it’s been sold twice already. After each sale, wholesalers and retailers raise the price based on a margin. Here’s the math. This tax would add $36 to the price of a keg (half a barrel). The distributor will add 30% to that and sell it to the retailer, who will in turn add their markup before pulling the pint and selling it to you. That means the tax will have roughly doubled by the time the customer pays it. It’s also worth emphasizing that three participants make money on the sale of that barrel of beer—the producer, the wholesaler, and the retailer, and yet this targets only one of them. The one, incidentally, responsible for the hugely successful and culturally-important industry.
Hammering Local Breweries
This will hit breweries very hard, and the ones who will feel the effects the most are small—meaning local Oregon—breweries. On social media, Baerlic’s Ben Parsons laid out the stark reality: “If this increase were to happen, we'd go from paying around $5,200 a year to about $145,200 a year in Oregon excise taxes.” Keep in mind that Oregon breweries pay all the regular taxes that feed the state budget and they pay a federal excise tax. They are among the most heavily-taxed businesses in the country. Parsons added, “If you look at a 1,500 bbl brewery with a net profit of 15% on $1.5 million in revenue, you're looking at $225k in net profit. This tax increase would cut net profit by more than half.” Of course, breweries with smaller net profits—or ones struggling to emerge from Covid in the red—still pay the tax and there’s every reason to believe some would fail. (As we’ll see next, that’s actually the point.)
Critically, this would put local businesses at a competitive disadvantage against the very corporate breweries sponsors demonize. Why? Beer is a game of scale. Larger breweries are more efficient and can absorb costs more easily. Small breweries are inefficient. A 250-barrel brewhouse requires no more brewers than a 25-barrel brewhouse to operate. The savings of buying in bulk drive expenses down as well. So little breweries can’t absorb cost spikes the way big breweries can. Breweries already function on extremely narrow margins at the supermarket. This tax would make it all the harder for small breweries to compete in bottles and cans.
It’s Not Pigouvian, It’s Punitive
The organization behind this effort is a new one, Oregon Recovers, and they have the laudable mission to reduce addiction in Oregon. Yet the rationale here is presented in stark moral terms when in fact the goal is far more controversial. Economists describe “Pigouvian” taxes as those that recoup money spent by the government on activities that cause “negative externalities.” In the case of alcohol, that would be the cost of addiction, abuse, and accidents borne by the state. Fair enough. Alcohol is a dangerous drug, and it’s not unreasonable to expect companies to foot the bill for these human and monetary expenses. (Though as a strict matter of public policy, it’s worth noting that a lot of industries go untaxed for the myriad negative externalities they cause. In other cases we handle that by collecting taxes into the general fund and spending them on remediation.)
But here’s the thing. Oregon Recovers hasn’t made the Pigouvian case. They haven’t offered a monetary case at all—and in fact they blend statistics for drug and alcohol addiction to conceal the actual costs created by alcohol. More explicit is the case by Oregon Recovers E.D. Mike Marshall, who told the Portland Business Journal that “raising taxes is the best way to reduce harmful consumption of alcohol.” It’s not about recouping costs, it’s about driving consumption down—and presumably, producers out of business. Tellingly, when talking about their approach, the model Marshall cited was tobacco.
Would Oregon breweries be willing to modestly raise their own taxes to fund services that treat alcohol abuse and addiction? I suspect they would. They are an unusually public-spirited group. This isn’t that effort. If it were, the sponsors would be working with alcohol groups and setting the increase at a manageable level. Instead, they’ve got both barrels trained on these industries.
Update: Oregonians can email their legislators to voice their opposition to this bill. It’s a House bill, so you want to contact your state Representative (though pinging your Senator as well isn’t terrible). You can find them at this link, along with contact information. Be polite and thankful—legislators here aren’t paid much!—specifically mention HB 3296, and feel free to link to this article.