Dive Brief:
- The new tax law includes the “Craft Beverage Modernization and Tax Reform” legislation that provides relief for large and small beer producers. It is especially beneficial to smaller breweries because the savings will allow them to invest in equipment and ramp up distribution to better compete with MillerCoors, Anheuser-Busch and other bigger players, MarketWatch reported.
- For brewers who make fewer than 2 million barrels annually, the law cuts the federal excise tax in half for the first 60,000 barrels produced for domestic brewers -- from $7 to $3.50 per barrel. The law, which expires in 2019, provides some relief for all beer producers, reducing the tax to $16 per barrel from $18 for the first 6 million barrels and maintaining the $18 per barrel tax for the rest.
- Industry leaders say the tax break will help, but question whether the move will entice small, craft breweries to sell more options at grocery stores in an already saturated market, brewers told MarketWatch.
Dive Insight:
As millennials embrace the unique flavors and plentiful options of specially brews, beer sales from smaller, independent breweries grew 8% in 2017 to $26 billion, according to an annual report from the Brewers Association.
The number of craft breweries has risen to 6,266 in 2017, compared with 2,898 four years earlier. With so many small breweries, these tax savings could give them additional money to invest in their operations. In addition, some craft breweries have experienced a drop in sales as more competitors enter the segment and deep-pocketed megabrewers muscle themselves into the space. This money could help at least a few of them hang on a little while longer and potentially outlast the downturn.
Pushed by the beer lobby, the tax provision had bipartisan congressional support. Supporters say it won’t reduce the cost of a cold one for consumers or lead to the growth of more craft breweries, but it could allow current businesses to expand, sell more beer and hire more employees.
Although most businesses aren’t likely to complain about a tax break, critics of the craft beverage provision say it mirrors issues they see with the overall tax reform bill — while claiming to help the little guy, the new law puts far more money into the pockets of large producers.
Adam Looney, a senior fellow at the Brookings Institution, told the Washington Post that breweries with smaller tax payments will see smaller overall savings than those who pay the most. He estimates smaller brewers will reap about 10% of the overall tax cut.
The popularity of craft beer isn’t going to evaporate overnight, but it remains to be seen whether the new tax bill will lead to the industry health and growth supporters claim.