Beer Stimulus: Can Hops and Barley Create Jobs?

June 22, 2010— -- Crack a cold one and help save the economy?

That's what an unlikely pair of political allies believe could be the brew with a bill in Congress that would reduce taxes for small breweries and, they say, create new jobs.

Reps. Richard Neal, D-Mass., and Kevin Brady, R-Texas, are proposing a bipartisan bill that craft brewers have dubbed the "beer stimulus." It would reduce excise taxes for breweries producing less than 6 million barrels a year, in the hope that small-town brewers could fatten their balance sheets and hire more workers.

One of brewers' bigger expenses is excise tax imposed on spirits and tobacco, first imposed in the 18th century to pay off debt from the Revolutionary War. Excise tax on beer, like other spirits, is paid per barrel produced and can be quite costly to smaller producers. The proposed legislation would drop the tax from $7 to $3.50 per barrel on the first 60,000 barrels for small brewers.

Rob Tod, owner of Allagash Brewery in Portland, Maine, said excise tax is one of his biggest financial outlays.

"Just to give you an idea of the burden we have in paying excise taxes: We employee 25 people ... and this year we'll pay over $150,000 in excise taxes," Tod said. "Whether we make or lose money we have to pay these excise taxes, and it's a burden that other small businesses don't have."

According to an estimate in a Harvard University study, reducing the excise tax would create more than 2,700 new jobs in the first year to 18 months and an average of 375 new jobs per year over the following four years.

Brady, the co-author of the bill, said although it isn't a priority for Congress to do, it is a serious bill that could create a lot of jobs.

"I know, considering we are fighting a war, the economy and the oil spill, this isn't the top of Congress' agenda, but this is a chance to increase jobs," Brady said. "Beer has gone global. We have these small craft brewers that can bring amazing new tastes in the market."

Big Beer Dominating Industry

Craft brewing has been a growing U.S. trend in recent decades.

"Craft beer is uniquely American because most Americans live within 10 miles of a brewery," said Kim Jordan, president of New Belgium Brewing Company in Ft. Collins, Colo. "So it's very local. People can go to their local brew pub or brewery and purchase beers that are made by people who are their neighbors and their friends."

The craft brewing industry competes with massive companies such as MillerCoors and Anheuser-Busch Inbev, which control a majority of the beer industry and have better financial backing to advertise and distribute their products, beer industry experts say.

"Today, the two top layers in the beer market, which are global companies, control more than 90 percent of the beer production," Neal, the bill's co-sponsor, said on the House floor. "Clearly, we need to do more to foster and promote growth for these small independent American brewers."

The Beer Institute, a lobby group that represents the larger breweries like Anheuser-Busch Inbev, says although it supports a different excise tax bill, it welcomes some changes to the beer excise tax structure that will help reduce the tax burden on manufacturers.

"Congressman Neal's bill is another indication that members of the U.S. House of Representatives support beer excise tax relief," the Beer Institute says. "In 2008, members of the beer industry paid more than $41 billion in taxes at all levels of government and provided jobs to 1.9 million Americans. Congressman Neal's bill will foster and promote growth for brewers who provide manufacturing jobs to hard working Americans."

Sam Calagione, a founder of Dogfish Head Brewery in Milton, Del., started his company at the age of 25, building his now-booming brewery out of used kegs. He believes the bill will give craft brewers like him a chance to compete with the bigger beer companies.

"It's scary: Two giant breweries dominate over 85 percent of the domestic beer industry, and yet there are over 1,500 breweries in the country," Calagione said. "So something is wrong with that picture. And the small breweries are trying to grow and trying to stay competitive, but we are kind or marginalized by these giant players in our industry."

"If this administration is all about growing the economy and is all about jobs and business, our companies are in every town pretty much in America, and us small breweries need help to continue to grow," Calagione said.

Craft Brewers Emerging In Recession

P.J. Hoberman, a 26-year-old self-proclaimed "nano craft brewer" from Denver, is hoping that the passage of the bill will give his new brew "Mad Haven" more of a fighting chance.

"It saves enough money where we can survive," Hoberman said. "Past that, it allows us to buy an extra tank. At the next level, more employees who can then help us make more beer."

Rob DeMaria, of Prism Beer in Pennsylvania, said passage of the bill would allow him to grow his specialty beer business even in a recession. He considers craft brewing to be a uniquely American trade, recently launching his summer brew known as "Tea Party Unfiltered Pale Ale."

DeMaria is not a part of the tea party political movement, but feels craft brewing is a great way to become creative with beer.

"In the beer world, if you put me next to Budweiser, I am the Lady Gaga," he said.

Since the recession hit, craft brewing has taken an unexpected turn. While overall beer sales having dipped, craft beer sales actually have increased. According to the Brewers Association, U.S. beer sales were down 2.2 percent in 2009 while craft beer increased barrels of beer sold from 2008 of 8.5 million barrels to 9.1 million in 2009.

Sam Calagione attributed the phenomenon to the relatively low cost of "world class beer," calling it a cheap luxury.

"It's amazing how the wine world has stratified the pricing," he said. "You really have to be a millionaire to buy world-class wine, but you can walk into any liquor store in America [or] beer store in America with $20 and literally buy world class beer."

Small Beer as a Job Creator

According to the Bureau of Labor and Statistics, the unemployment rate in May was still 9.7 percent. It can be argued that funding beer is not the answer in an economy where state budgets across the country have put public service jobs like education in jeopardy.

However, beer makers like Jordan argue that local breweries do give back to their communities.

"Craft beer in the United States is an incredibly exciting industry that is peopled with interesting innovative community citizens who are doing a lot to give back to their communities," Jordan said. "And it's beer. Who doesn't love beer?"

Brady argued that this bill is a legitimate hometown job creator.

"Beer is all-American," he said, "and these jobs are all American at a time when we need these homegrown jobs."