The Republican Deregulation Bonanza Could Start With Craft Beer
WHY YOU SHOULD CARE
Because alcohol might be the solution to small-town America’s problems.
By James Watkins
Ken Broadhead has messed around with hops and yeast in his kitchen ever since leaving college, but after his wife got sick of the smell he graduated to the garage. Then, after meeting fellow home-brewing enthusiast John Martin in 2004 — appropriately, at a bar — the pair joined forces and eventually vowed to commercialize their hobby with a clinking of glasses. Then in 2012, the entrepreneurs opened a microbrewery and taproom in Des Moines, Iowa, with Martin as the full-time head brewer and two part-time staffers.
They timed it well, riding the wave of an American craft beer boom. In less than five years, their company has grown into a local powerhouse that employs 27 people, pumps out as much as 5,000 barrels of liquid gold per year and flashes the Confluence Brewing Company logo on taps in bars and on cans in stores all across the state of Iowa.
Their story is far from unique. Almost two-thirds of the 5,200 small and independent breweries in the United States have set up shop since 2010. And now legislators are starting to see the potential of the industry as more than just a hipster trend. The soberly named Craft Beverage Modernization and Tax Reform Act is gaining traction in Congress, with 37 co-sponsors in the House and 15 more in the Senate at the time of writing (that number is likely to increase). Stoking the legislative fires is the Brewers Association, which hopes the bill will become a pillar of the 115th Congress’ efforts to cut taxes and slash regulation for small businesses, helping to turn the beer boom into an engine of local economic growth and employment. According to Bob Pease of the Brewers Association, the majority of the 120,000 jobs supported by the industry are in urban manufacturing in states as diverse as Iowa, Vermont and Colorado. There’s not a politician on either side of the aisle who wouldn’t drink to that.
Specifically, the bill would halve federal excise taxes for small brewers from $7 per barrel to $3.50, reduce paperwork for ingredient and recipe approval and provide more funds for the Alcohol and Tobacco Tax and Trade Bureau, a small regulatory body that has been stretched thin by the exponential growth in breweries. Despite the expansive headline figures, small brewers could use the break, says Chris Verich, owner of the Ohio Brewing Company, which employs 18 previously unemployed people in “about as blue-collar an area as you’ll ever see.” According to Verich, capital investment for new breweries can be substantial, and competition for cheaper secondhand equipment means progressing from basement to commercial brewery takes longer and is more expensive than it used to be. With more modest relief proposed even for large beer manufacturers, they too are throwing their support behind the bill, despite the fact that local brews could soon become more price-competitive with the Bud Lights and Blue Moons of the world.
If [the reform bill] passes, we’re hiring somebody tomorrow.
Ken Broadhead, co-founder, Confluence Brewing Company
The majority of craft breweries remain micro outfits, says Neil Reid, an industrial geographer at the University of Toledo who’s also known as the Beer Professor. Reid notes that costs really rack up when entrepreneurs take the big step from an on-site taproom to a bottling, packaging and distribution enterprise. That’s where the tax cut will help small business owners expand from local curiosities to regional industrial employers, claim advocates. “If [the bill] passes, we’re hiring somebody tomorrow,” says Broadhead. In addition, the economic impact of craft beer “goes far beyond just what you see at the brewery,” says Pease, noting the importance of beer tourism in certain cities as well as downstream employment for hops and barley growers and can manufacturers.
Craft brewers represent “the quintessential American success story,” says Congressman Erik Paulsen, a Minnesota Republican and one of two legislators who introduced the bill into the House in January. Indeed, few industries are typified by such a large number of small, independent firms in local communities across the country enjoying such rapid growth. Americans’ taste in beer is changing, says Reid, and that shift is being driven by millennials. “People enjoy the idea of going to locally owned establishments and buying a product that’s made right there,” he says.
Despite cross-party support, there is no guarantee that the bill will make it onto the statute books. When introduced in the previous Congress, it received the support of 288 co-sponsors in the House and 51 in the Senate — more than half of all legislators. But the bill was never attached to a broader legislative movement and wasn’t voted on. Nevertheless, hopes are high this time around. “It is always tough to move tax policy,” Congressman Paulsen tells OZY, but “the prospects are pretty good.”
Even with this federal bill, state laws can impede the growth of craft brewing. While the Georgia state legislature is debating whether to allow small breweries to serve beer on-site in taprooms, New Mexico recently introduced a bill to increase state-level excise taxes on beer from $12.71 per barrel to a whopping $95.48. (For context, a half-barrel keg of a typical craft beer from Confluence Brewing Company costs around $240.) Then there’s the issue of craft brewers getting in their own way: It’s highly regulated industry that often attracts first-time entrepreneurs who don’t “know anything about how small business works,” says Broadhead.
Still, the outlook for the beer industry does remain fairly rosy nationwide. So the next time you pay a visit to your Friday-night watering hole, maybe try a pint of the local. Cheers!