INSIGHTS: BEER AND EXCISE TAXES
In 1862 the first beer excise tax was imposed on the industry. It was a simple tax, volumetric and based on a 31 gallon barrel unit of measure. I can imagine it was pretty easy back then, the brewer simply counted how many barrels rolled out of the brewery and multiplied by $1.00. Best estimates show that the country commercially brewed 3 million barrels per year and per capita consumption was around 4 gallons per person per year; keeping in mind that most people brewed and fermented the alcohol beverages at home back then. At the most the U.S government collected $3 million in beer excise taxes in 1862. Even then, the industry felt it was necessary to voice opposition, and the U.S Brewers Association was one of the first registered trade associations in the county. Today the U.S. consumes more than 205 million barrels of beer, per capita consumption is about 20 gallons per person and the government collects $3.6 billion in beer taxes.
The beer tax has changed 15 times since 1862. Increases were mostly driven by defense funding requirements from WWI, WWII and the Korean War. Despite the introduction on personal and corporate income taxes, the beer excise remains in effect. Today the beer excise tax works as a graduated tax first introduced in 1977 as a small brewer exemption. The exemption charges brewers $7.00 on the first 60,000 barrels of production. After 60,000 barrels they pay $18.00 per barrel and continue to pay $7.00 on first 60,000 barrels. Once a brewer reaches 2 million they lose the small brewer exemption all together and pay a full 18.00 for all barrels they produce. This graduated tax has proven an effective tool for encouraging new entrants into the industry, as the number of permitted breweries in the United States has grown from around 50 in 1977 to almost 4,000 at the end of 2014.
The beer tax remains a highly regressive tax on lower income consumers as the cost per serving is the same regardless of the price paid by the consumer. In other words, a discount budget beer drinker pays the same amount per serving as a super-premium beer drinker pays. Moreover, the actual tax burden is subject to significant “over-shifting” as mark-ups are applied at the distributor and retailer levels before being subject to state sales tax for the consumers. The beer industry has called out the excise tax as a hidden and regressive tax on producers and consumers. Success has been measured by maintaining the current tax structure imposed on the industry in 1991. Effectively communicating the economic impacts that suppliers, distributors and retailers contribute to the economy is front and center in a 153 year old battle to rid the country of beer excise tax.
ON THE ECONOMY: WORKING CLASS HERO
As soon as you’re born they make you feel small, by giving you no time instead of it all. ‘Til the pain is so big you feel nothing at all. A working class hero is something to be. A working class hero is something to be. They hurt you at home and they hit you at school. They hate you if you’re clever and they despise a fool. ‘Til you’re so <freaking> crazy you can’t follow their rules. A working class hero is something to be. So goes the opening stanzas of John Lennon’s classic from his first post-Beatles solo album, John Lennon/Plastic Ono Band.
The song was according to Lennon, a commentary on the difference between social classes and how working class individuals are being processed into the middle classes. This month, in his State of the Union Address, President Obama presented a grab-bag of populist ideas that he labeled Middle Class Economics. These included raising the minimum wage, enacting a host of new taxes on banks and on capital gains, a law guaranteeing women equal pay for the same work (which is exactly what the Equal Pay Act, signed into law in 1963 does), paid sick leave for 43 million people, and free community college for qualified students. Unfortunately, none of this will actually help the middle classes.
In order to help the middle class, one must first understand what is meant by the term. The concept of classes in the modern form came about in the early 1700’s when classes of people were first defined in terms of occupation and income. Generally discussions of class were part of Marxist economic theory and even today, the term refers mainly to a person or family’s relationship with production. The upper classes tend to own what Marxists would call themeans of production, having control over property. The middle class possesses human capital, in terms of specific technical or educational skills, while the working class consists of people who have only their labor to sell. So in other words, policies that help the middle class would be those that benefit college graduates, and those with technical skills like electricians, mechanics and plumbers.
Taking a very rough look at median wages across 800 occupations since Barak Obama became president it is interesting to see that the middle class is actually doing pretty well. In this case, middle class wages, as measured using those of an accountant, have grown by 7.9 percent, which is about one-third faster than average wages overall. At the same time, wages for the working class (as measured using the median earnings of a hotel clerk) grew at about half the rate as the average. Upper class wages (proxied by the median earnings of Chief Executive Officers) have grown at more than double the average during the Obama Presidency.
But let’s examine the specific proposals and see how they might help our average accountant. First, raising the minimum wage. Since the average wage rate for middle class workers is well above the statutory minimum we won’t see any wage increases. But the cost of hotels, restaurant meals, and other labor intensive employment will rise. Firms will react by replacing less productive labor with capital in the form of machines. So our accountant will now deal with a computer screen at the local fast food restaurant rather than a cashier. This may improve their situation as there will be less errors in ordering, and service speed might even be increased. One for the President.
Capital gains tax increases will make it more expensive to invest. Assuming (as would Marx) that only the upper classes have control over capital, then this would divert investment away from new computers, new software, even new businesses. Our middle class accountant will be able to continue to use old computer systems to deal with the increasingly complex tax code, thus ensuring that he (or she) will not have to deal with as many returns each year. By making work less productive, there will be less incentive for managers to raise accounting wages, but hey that is a small price to pay to have to deal with fewer audits and interactions with the IRS so let’s call this a middle class wash. Since most middle class employees (being skilled and technical workers) either work for themselves or work for firms that already provide benefits, Federally mandated sick leave will not really impact them. But just as with the minimum wage proposal paid sick leave for working class people will make them even more expensive, again encouraging less hiring of cashiers, hotel clerks, bank tellers and other people who have nothing to sell by their labor. This might encourage more of these people to enter the underground (off the books) economy making it easier to hire baby sitters, house cleaners, gardeners etc. So let’s score another one for the middle class.
Finally, there is the President’s proposal to provide free Community College for certain students. Education and the growth in human capital is one of the most important factors for growing an economy, and I for one agree with the President’s statement that a two-year degree is a minimum level of education necessary to prosper in the current economy. Encouraging more people to enter higher education, whether through 4-year, 2-year or private for-profit schools, is one of the best things that the government can do to help grow the economy. Unfortunately, this is the one part of the President’s proposal that may harm the middle class as it will increase the number of people qualified to be nurses, accountants, electricians, etc. More supply reduces prices and that means that it drives down wages – good for the economy, not so good for incumbent workers.
Taken as a whole, the proposals made in the State of the Union address will likely have but a limited impact on middle class people and families, and the effects could actually be negative. What they will do is make it much harder for working class people to find jobs.
John Lennon may have put it best Keep you doped with religion, and sex, and T.V., and you think you’re so clever and classless and free. But you’re still <freaking> peasants as far as I can see. A working class hero is something to be. A working class hero is something to be.
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