WASHINGTON -- Federal lawmakers are brewing tax-cut legislation that could help the craft beer industry compete against malt beverage giants.
The Small BREW Act would halve the excise tax on the first 60,000 barrels of beer produced, bringing the tax to $3.50 per barrel, and would institute a new rate of $16 per barrel for beer production between 60,000 and 2 million barrels. Breweries producing more than 6 million barrels a year would continue to pay $18 for every barrel produced.
The legislation also expands the definition of "small brewery" by allowing brewers producing up to 6 million barrels to pay the reduced rates on the first 2 million barrels a year.
The new tier would ensure that D.G. Yuengling & Son in Pennsylvania and Boston Beer Co., the two largest U.S.-owned brewers, pay lower rates than foreign-owned competitors as they grow.
Both produce about 2 million barrels a year, while the largest foreign-owned breweries distribute more than 100 million barrels a year in the United States.
"They're paying the same rate as Anheuser-Busch and MillerCoors. We don't think that's right," said Bob Pease, CEO of the Brewers Association, a national trade group representing 1,850 small brewers.
U.S. Rep. Jim Gerlach, R-Pa., agrees. That's why he's leading the charge in the House while U.S. Sen. Ben Cardin, D-Md., is sponsoring similar legislation in the Senate.
The aim is to help small breweries reinvest in their businesses, create jobs and compete against large foreign-owned malt beverage companies, said Sen. Bob Casey, D-Pa., a co-sponsor of the Cardin bill who has been stumping for the legislation in Pennsylvania.
"This part of our tax code hasn't been updated since 1976, yet the market has changed drastically," Mr. Casey said.
The number of breweries in Pennsylvania alone has doubled in the last decade, according to a recent report of the state Legislature's Joint Legislative Budget and Finance Committee.
Local brewers could save several thousand dollars a year, said Church Brew Works founder and president Sean Casey (who is not related to the senator). His brewery produces 2,000 to 2,500 barrels a year, each containing 31 gallons of concoctions with names like Pious Monk Dunkel, Pipe Organ Pale and Celestial Gold.
"For boutique brewers like us, that's $7,000 a year you could plow back into your operation, maybe buy 60 new kegs," he said. "Many of us started bootstrap and not super-well capitalized, so $7,000 is a lot."
He and other small brewers say the savings would help blunt the competitive edge that large breweries have because of economies of scale.
Officials from Anheuser-Busch InBev and MillerCoors, the largest brewers, could not be reached Friday. But the Beer Institute, which represents large brewers, opposes the Small BREW Act, preferring a tax policy change that would reduce the excise tax to $9 for all brewers, while still giving small brewers some extra help by eliminating the tax on the first 15,000 barrels and reducing the rate to $3.50 for production between 15,000 and 60,000 barrels.
The Institute has reached out to Mr. Gerlach's office to say his bill is unfair, but the congressman doesn't think so.
"Big brewers have certain advantages in the marketplace that small craft brewers don't, so to have a different tax is appropriate," Mr. Gerlach said Friday.
"The larger brewers have 94 percent of the beer market. They're doing very well. They have access to capital if they want to grow their facilities," he said. "The small craft brewers have a more difficult time getting established and have a more difficult time getting credit and capital at local lending institutions, so this is meant to give them more money to invest back into their operations."
The proposed tax reduction for small brewers would cost about $67 million a year in reduced revenue, but supporters say that would be offset by brewers' reinvestment in jobs and equipment.
"They're going to take that savings, plow it back into the business and hire people," Mr. Pease said.
Craft brewers reinvest money in people while large brewers reinvest in technology, he said.
"This isn't about fairness. This is about jobs," Mr. Pease said.
The legislation is unlikely to get a vote as a stand-alone bill, but could be incorporated into a larger tax bill, said Mr. Gerlach, who sits on the House Ways and Means Committee.
Washington Bureau Chief Tracie Mauriello: firstname.lastname@example.org, 703-996-9292 or on Twitter @pgPoliTweets.