September Beer Roundup

Here are some articles about beer that I thought were interesting.

“September 9 Day of Action Planned to Urge Passage of Craft Beverage Modernization and Tax Reform Act.” The Brewers Association  and other allied trade associations such as American Mead Makers Association are spending today lobbying  for passage of the Craft Beverage Modernization and Tax Reform Act, S.362/H.R. 1175. The bill would make the temporary tax benefits that brewers, distillers, and other actors in the liquor industry received from Trump’s tax cuts of 2017 permanent Those tax cuts flowed mainly to very rich people and corporations while poor and working-class people received little benefit. Brewers did not complain since they were also beneficiaries of the law.

The liquor industry like other businesses has suffered during the pandemic. If the tax cuts go away, it could worsen their economic situation. This article reports that two breweries with beer gardens and beer-to-go in Everett Massachusetts have closed because a customer went bar hopping while awaiting the results of a COVID-19 test.

The Great American Beer Festival has been held for thirty-nine years. This year it will be virtual. I have always wanted to go but I haven’t made it out to Denver yet. The upside of everything being virtual during the pandemic is that you can attend events that in real life you might not have been able to go to. It runs October 16–17. On the 17th Marcus Baskerville, Weathered Souls Brewing Co. , will be speaking about the Black is Beautiful brewing project that I wrote about here.

Prohibition, 100 Years Later

On January 17, it will be 100 years since Prohibition went into effect. Because of the current political climate  around immigration, I  am posting an excerpt  from Brewing Battles that describes the treatment some German-American brewers received  during the enactment of Prohibition.

The brewing industry was overwhelmingly German; most German-Americans drank beer as did many other Americans. Although German-Americans maintained many ties to Germany, the vast majority were second or third generation Americans. The founders of most breweries had immigrated to America in the 1840s and 1850s. World War I generated a tremendous amount of public hostility against Germans and German-Americans. For brewers and their fellow ethnic citizens, the war period was a test of their dual identities.

Some of the nation’s most prominent brewers faced these issues of loyalty and cultural identification as soon as America entered the war. One of New York’s most prominent brewers was George Ehret, Sr., the nation’s largest brewer in 1877. In 1914, Ehret, an American citizen, returned to Germany to live. In 1918 his son, George Ehret, Jr., turned over the family property with a value of $40 million to the federal government. A. Mitchell Palmer, who was then the Alien Property Custodian, found Ehret, Sr. to be “of enemy character.” Ehret had not broken any laws but appeared to be friendly with and under the protection of “powerful men.” He had also given large amounts of money to the German Red Cross since 1914. Palmer stated that Ehret, who was 83, could get his property back if he returned to America. He would then lose “his enemy character.” The Ehret family’s status as influential New Yorkers and wealthy Americans apparently did not mean as much as his German affiliations.[1]

Lily Busch, widow of Adolphus Busch, suffered similar problems. The Buschs, if not the country’s wealthiest brewing family then certainly its most ostentatious, owned several estates including a castle on the Rhine in Germany. Adolphus died in 1913; estimates of the value of his wealth ranged from $30 to $60 million.[2] Both Adolphus and Lily were born in Germany; Lily had become a naturalized citizen of the United States. When World War I broke out she made her German home a war hospital and served as a nurse. The German government took her property because she was an American citizen; the United States viewed her as enemy alien since she was in Germany. When she returned to the United States in 1918 the government seized her property and placed her under a form of house arrest. She died in 1928.[3]

The prosecution, if not persecution, of these prominent brewers and their families indicated the deep unease Americans felt about the presence of Germans in their country. The rhetoric of the Prohibition movement for most of its existence had been positive, extolling the virtues that removing alcohol from society would bring. . . . The final push that brought Prohibition, the Eighteenth Amendment, and the Volstead Act into being became negative and played on people’s fears as American faced a world that was unfamiliar and rapidly changing.

Jacob Rupert, owner of the New York Yankees and Jacob Rupert Brewery with Miss Harwood, 1921. Photo courtesy of Library of Congress, Prints and Photographs Division.

 

[1] “Nation Gets Ehret Property,” New York Times, May 14, 1918, 1.

[2] “Adolphus Busch Dies In Prussia” New York Times, October 11, 1913, 15.

[3]; “Mrs. Lily Busch of St. Louis Dies,” New York Times, February 26, 1928, 27.

© All Rights Reserved Amy Mittelman 2020.

Molson Coors

At the end of last month, Molson Coors announced that it was restructuring and closing its offices in Denver and other places. This change could save the company up to 150 million dollars. Molson Coors is the parent company of Miller Coors. Although the company is laying off 500 workers, the restructuring will create some new white collar jobs in Milwaukee. Finance, human resources and other support services will consolidate and be based in Milwaukee. Milwaukee is the historic home of Miller beer.

Although some aspects of brewing will be in Milwaukee, the name Miller Coors will cease to exist. Instead it will become part of the North American division, headquartered in Chicago. Beside consolidating services and offices, the restructuring is part of a plan by Molson Coors Brewing to become Molson Coors Beverage company with a greater focus on products other than beer. Hard seltzer is on of the “new” company’s targets.

The loser in this plan is Denver. Coors has been a presence in Colorado for almost  150 years. The closing of the corporate offices will lead to 300 people losing their jobs. Colorado is facing this significant job loss as well as a loss of its corporate identity. The state remains second in craft brewing; California is first.

As the brewing industry seeks continued tax relief, perhaps  federal legislators will call Molson Coors to task for laying off 500 people. If you want more information on  Molson Coors, read here and here.

Roundup

These are some articles about liquor and the liquor industry that have come to my attention that may be of interest to my readers.

Five Things that No One Wants to Say About Italian Craft Beer by Evan Rail in VinePair. I didn’t even know there was craft beer in Italy.

Somerville Mayor Joseph Curtatone is boycotting Boston Beer, makers of Sam Adams because the founder, Jim Koch attended a dinner with President Trump  and praised Trump’s tax law which contained a big tax break for brewers. Of course, Trump is a teetotaler so, like everything else, he probably knows nothing about beer. I think I will probably stop drinking Sam Adams now. Let me know if you agree. You can read the article here.

Jim Koch and other craft brewers are happy about the new tax law but Anheuser Busch is in their rear mirror. The global company has bought 10 different craft breweries since 2011 and now is the country’s largest craft brewer. Most consumers of course don’t know that Goose Island and other crafts beers are actually owned by Anheuser-Busch.

I started wondering about  the wine industry in Massachusetts and discovered that there is a trade association, Massachusetts Farm Wineries and Growers Association which has over 20 wineries as members.  Organized in 2007, their biggest success has been the passage of legislation which allows the sale of wine at farmers markets.

 

White House Scandals

In honor of the scandal ridden Trump presidency, I am posting an excerpt from Brewing Battles which deals with a scandal during the Truman administration.

The United States government had essentially remained on a war footing since 1945, and the Korean War continued this approach. In the spring and summer of 1951, Congress considered legislation to finance rearmament. Military spending had more than tripled since 1950, and the armed forces had more than doubled in size. As part of the overall package, legislators planned to increase excise taxes on liquor, beer, wine, tobacco, automobiles, gasoline, and sporting goods. The House wrote legislation that included tax increases for both distilled spirits and beer which would help to generate $7.2 billion in revenue. The Senate held hearings on the legislation; various representatives of the different branches of the liquor industry appeared.[1]

Since 1940 the Alcohol Tax Unit of the B.I.R. had responsibility for regulation of the liquor industry. The larger bureau, which had existed since 1862, had not had any reorganization since 1917. Two wars and Prohibition had occurred as well as a dramatic increase in tax collections and employees. By the end of World War II, a person might wait twelve months or longer for a tax refund. In 1944 the federal government collected $42,125,986,550 in income taxes. This was an increase over 1943. Although income taxes played the largest role in the country’s tax situation, brewers and the liquor industry had also been significant contributors throughout the war.[2]

Staffing of the Bureau and its sixty-four collection districts had been done on a purely patronage basis with predictable results. An investigation of the agency in 1951 by Senator John James Williams, (R. DE) revealed that at least four different collectors in St. Louis, Boston, Brooklyn, and San Francisco had been engaged in fraud, embezzlement, bribery, and tax evasion. The most prominent member of the Administration to face corruption charges was Matthew J. Connelly, the President’s appointments’ secretary. Connelly received a two year sentence for tax evasion and influence peddling. He served six months in prison after the end of the Truman presidency: Truman eventually persuaded President Kennedy to pardon Connelly.[3]

Although not as large a scandal as the Whiskey Frauds of the late nineteenth century, President Truman did respond by reorganizing the Bureau, reducing the number of collection districts to twenty-five, and turning appointment power over to the Civil Service. John Wesley Snyder, a close friend of and powerful fundraiser for President Truman, was Secretary of the Treasury and was in charge of reforming the Bureau of Internal Revenue.[4]

The final legislation raised $5,691,000,000 in taxes and included a $9 a barrel beer excise tax.

[1] “Tax Bill 7.1 Billion; No Rise on TV Sets,” New York Times, May 26, 1951, 8; “Bootlegging Seen in Liquor Tax Rise,” New York Times, July 31, 1951, 15; Lawrence S. Wittner, Cold War America: From Hiroshima to Watergate (New York: Praeger, 1974) 79.

[2] Andrew J. Dunar, The Truman Scandals and the Politics of Morality (Columbia, MO: University of Missouri Press, 1984), 96; William Pemberton, Bureaucratic Politics: Executive Reorganization during the Truman Administration (Columbia, MO: University of Missouri Press., 1979), 162, “Federal Tax Yield $42,125,986,550 in 1944,” New York Times, February 13, 1945, 36.

[3] Dunar, The Truman Scandals, 98-99, 150-155; All had received appointments as collectors during the tenure of either Robert E. Hannegan or Joseph Nunan as Commissioner of Internal Revenue. Hannegan had been instrumental in helping Harry Truman win re-election to the Senate in 1940 and later served as chair of the Democratic National Committee when Truman received the vice-presidential nomination at the 1944 convention. See “Truman is Seventh Elevated By Death,” New York Times, April 13, 1945, 3.

[4] Dennis Merrill, ed., Documentary History of the Truman Presidency, University Publishers of America, 2000, vol. 28, xxxix, 271 -272; Rick D. Medlin, “Snyder, John Wesley,” American National Biography Online www.anb.org/articles, (accessed on January 9, 2003).

Brewing Battles: A History of American Beer, © 2008 by Algora Publishing, p. 143-145.

Frederick Lauer

On June 8, Reading, Pennsylvania held a celebration in honor of the renovation of a statue of Frederick Lauer, a founder and prominent member of the United States Brewers Association.  The statue was the first one ever erected in Reading. To help fund the project, the Berks Brewers Guild created a Lauer’s Fellowship ale. Sale of this beer raised over $5,000.  This article provides further details about the event.

I wrote about Lauer in both my dissertation and Brewing Battles.  In 2003 I wrote several entries about beer, brewing,  taxes, and cirrhosis for Alcohol and Temperance in Modern History, a two volume reference work edited by Jack S. Blocker, jr., David M. Fahey, and Ian R. Tyrell.

Here is the entry:

Frederick Lauer, one of  the nineteenth century’s most prominent brewers, was born in Germany in 1810. His family, wealthy Bavarian landowners, left for political reasons and immigrated to Reading, Pennsylvania in 1822.  In 1826, George Lauer, Frederick’s father built a brewery on the site of an Indian cabin in Reading.  Frederick eventually became the owner of this brewery, one of Reading’s prominent citizens, and a well-known lobbyist for the United States Brewers Association in Washington. Lauer actively participated in the USBA from the first national convention in 1862 until his death in 1883.

German-American brewers founded the USBA in response to the initiation of federal taxes on alcohol to help finance the Civil War.  The first national meeting was in New York on 12 November 1862 where Frederick Lauer was elected President of the new organization.  In 1863 the USBA appointed Lauer chair of a committee charged with overseeing the industry’s Washington affairs.

The most pressing concern of the brewers was a refund of taxes paid on beer brewed before the tax law had become effective. Lauer, along with other brewers, paid taxes on his stock on hand on 1 September 1862. The brewers’ argument for a refund was based on the specific fermentation and storage involved in producing lager beer.

Lauer worked diligently pursuing this matter with Congress but ultimately the brewers won the issue by suing and winning in the Court of Claims. Lauer achieved both a personal and industry victory.

In 1865 Secretary of the Treasury Hugh McCulloch established a commission to study the United States revenue system.  The USBA and the Association of Ale, and Porter and Lager Beer Brewers, a sister organization of ale-brewers,successfully  requested that a panel  be authorized to investigate the excise laws of Europe as they pertained to malt beverages.  Frederick Collins of New York and Mathew Read of Philadelphia were both ale brewers and they visited Great Britain for two weeks.  Frederick Lauer joined them in visiting Belgium, France, the German States and Switzerland.

David Wells, the chair of the Revenue Commission used the brewers’ report, published under the auspices of the USBA, verbatim. Lauer and the USBA were very successful in establishing an amicable, working relationship with government officials. The work they did with David Wells and the Revenue Commission in establishing the method of tax collection for beer was long-lasting.  The stamp attached to the spigot of every barrel removed from a brewery remained the way the federal government collected the excise until Prohibition.

Building on their success with refunds and collection the USBA established an Agitation Committee, which Frederick Lauer chaired.  This committee met regularly with officials and legislators, particularly when legislation was pending which was relevant to the industry.  Their greatest result came from holding the line on tax increases for 34 years. During the same time period, 1864 to 1898, taxes on distilled spirits increased three times.

Frederick Lauer was more prominent for his work as a brewing advocate than as a brewer. The Lauer brewery was never a national leader although it was the third largest in Pennsylvania at one time. Lauer turned over the running of the brewery to his sons, Frank and George in 1882. Lauer died on 12 September 1883.   In 1885 the USBA erected a statue in Frederick Lauer’s honor in City Park, Reading, Pennsylvania.  The statute still exists and is maintained by the Historical Society of Berks County Pennsylvania.

Reference

Downward, William L. Dictionary of the History of the American Brewing and Distilling Industry, Connecticut, Greenwood Press, 1980.

Mittelman, Amy H. “The Politics of Alcohol Production: The Liquor Industry and the Federal Government, 1862-1900”, Ph.D. dissertation. Columbia University, 1986.

Smith, Gregg. “The Fredrick Lauer Story”. The Real Beer Page

Whisky Tax Break

In 1976 Congress created tax differential for small brewers. The tax rate at that time was $9 a barrel for large brewers; small breweries that produced less than 2 million barrels paid $7 on their first 60,000 barrels.

When 1991 legislation increased the overall tax rate to $18, legislators retained the small brewer’s differential. The recent tax bill reduced taxes for both small and large brewers while maintaining a reduced rate for some brewers. The new tax bill also changed the rates for distillers, creating for the first time a differential rate for craft distillers. For a two-year period, the excise tax on distilled spirits will be only $2.70 per proof gallon for the first 100,00 gallons a year. The standard rates is $13.50 a proof gallon.

Craft distilling, modeled after craft brewing has emerged as a niche market in the past ten to fifteen years. There is a trade association for this segment of the distilling industry. The American Craft Spirits Association “is a registered non-profit trade group representing the U.S. craft spirits industry.” To be a member you must “annually produce fewer than 750,000 proof gallons removed from bond.” That is equivalent to 2.8 million liters.

Of course, most distilling is done by mega global corporations. Diageo is the world’s biggest whiskey producer with $16.8 billion dollars in sales. Their production of Johnnie Walker, just one of their brands, was 156.6 million liters in 2016.

The fact that the tax legislation represented a joint effort between large, and small brewers as well as craft distillers and the distilling industry overall is a departure from previous lobbying efforts. In the past, legislators have seen distilled spirits and beer as distinct products and have formulated tax rates separately, usually choosing to tax  distilled spirits which has a higher alcohol content at a higher rate. Localities today see both craft beer and craft distilling as engines of development and want to encourage this activity. In post- industrial America where we manufacture very little,  beer and whisky are still made in the USA.

 

 

 

 

Re-post: The Road from Repeal: The Three Tier System

As a followup to last week’s post about the impending tax legislation and it’s effect on the brewing industry, I am re-posting a blog from December 2008. At that time, in honor of the seventy-fifth anniversary of the Repeal of Prohibition, I wrote a series of posts about  Repeal and it’s aftermath. This one was about the three-tier system. It is relevant to what I wrote last week because I discussed Cindy McCain and her family’s wholesale liquor business. I wrote about that in the context of John McCain’s run for president. As I mentioned last week, you can probably draw a straight line from Hensley & Company to McCain’s support of the tax legislation.

The Road from Reform: The Three Tier System.

Prior to Prohibition distribution and sales of beer took place in variety of ways. Many brewers owned saloons which functioned as retail operations. The brewers supplied their beer to the saloon keeper.  Shipping brewers who operated on a national level maintained distribution outlets at various railroad stops. Although there were different federal fees for wholesale and retail dealers as well as excise taxes on brewers there was a lot of blurring of the lines between these different areas of the beer industry. Brewer ownership of saloons was the most problematic example.

As the federal government contemplated the return of legal liquor in 1932 and early 1933, alcohol advocates argued for a very distinct separation of production, wholesale distribution and retail sale of alcoholic beverages. Thus they established the three-tier system. Under federal law a brewer can not be the wholesale distributor of their product or the retail seller. Some aspects of this 1933 legislation had to be altered to allow the opening of brew pubs.

One outcome of this legislation was the development of a large group of beer wholesalers. Since 1938 they have had a national organization, the National Beer Wholesalers Association (NBWA). There are 2,750 wholesalers. This year the focus of the organization has been celebrating the 75th anniversary of Repeal as well as continuing to pursue permanent repeal of the estate tax, a rollback of beer excise taxes, prevent alcoholic equivalency labeling and avoid paying for public service announcement against under-age drinking. In the past leaders of the NWBA have advocated a reduction in the minimum drinking age.

Cindy McCain, wife of recent presidential candidate John McCain, is heir to one of the largest beer distributors in the country. A New York Times article in August 2008 examined the role of her family business in Arizona politics. Hensley & Company is the third largest Budweiser distributorship in the country. The mega breweries, Anheuser-Busch, Miller and Coors, have all achieved their dominance partly through creating deep and wide-spread distribution networks. Budweiser’s are the deepest of course. It is this distribution capacity and its resulting shelf space that InBev desired to purchase. It will be interesting to see if they use it to continue to sell Bud or to attempt to place some of their other beers on the same shelves.

Cindy McCain is an absentee owner and does not directly run any aspect of Hensley and Company. All of her children hold shares in the company. Her stepson, Andy McCain is a top executive and also president of the Phoenix Chamber of Commerce. Hensley & Company makes significant contributions to local politicians and contributes money to fight any potential increases in state excise taxes. The last increase was in 1984, only the third increase since Prohibition and, at sixteen cents a gallon is below the national median of nineteen cents. Hensley & Company, of course, belongs to the NBWA and supports its federal legislative agenda. Thus some observers wondered if John McCain as president would be able to be neutral on issues that related to the beer industry. Luckily we will never have to find out. As a senator he has received more money from the beer lobby than almost any other politician.

On the state level Hensley & Company have been successful in preventing taxes increase even when they have been proposed to help finance early childhood education or pediatric hospitals. The company is now supporting legislation that would make any tax increase more difficult to enact because passage would require a majority  of all registered voters not just those who vote.*

The role that Hensley and Company plays in Arizona as well as the role the NBWA plays on the national scene illustrates the changed political landscape for the brewing industry in the past seventy-five years. As the brewing industry consolidated there were fewer and fewer brewers and the larger numbers of wholesalers began to play a larger role in politics. There are many more wholesalers than there are brewers, even counting craft brewers, so they are likely to be a larger political force.

* For more information on beer and Arizona politics see the Phoenix Business Journal.

 

The Tax Man Cometh

For several years  the brewing industry has been seeking a rollback of the beer taxes of 1991. Until now I was dubious that they would be successful during the Trump administration. The heinous tax bill that the Senate passed last week appears to have achieved the industry’s goal.  The Senate put the tenets of the Craft Beverage  Modernization and Tax Reform Act into the pending tax legislation.

Senator Roy Blount, (R., Missouri) is the sponsor of the  beer legislation and his son is a lobbyist for Miller Coors. Cindy McCain’s family owns Hensley Beverage which is a major beer distributor located in Arizona. The National Beer Wholesalers Association, a trade lobby, supports the tax cuts. The McCain family involvement in the beer industry probably explains John McCain’s decision to support the tax legislation despite the complete lack of a process during the writing of the bill. No hearings were held and most Senators voted without reading the legislation.

The craft beer industry markets itself as David fighting the golaiths of Anheuser Busch and Miller Coors. They claim to be providing authentic flavors and products to deserving customers. Their full-throat-ed support of the Senate tax bill would seem to contradict this image. The bill eliminates deductions for student loans, state property taxes, the ACA individual mandate and in general screws anybody who is not in the one percent.

The bill will generate a huge deficit which will enable Republicans, once it is passed, to seek cuts in Medicare, Medicaid and Social Security.  The Brewers Association posted the following disclaimer: “Please keep in mind that the BA and its members have had no input on the larger political issues in play on the tax reform bill.” This rings hollow. Craft brewers should be ashamed of themselves for supporting such terrible legislation.

 

Always Taxes

At the latest Alcohol Task Force sub-committee excise taxes came up again as an issue. The lone public health person strongly encouraged the committee to think about raising the state excise tax on liquor which hasn’t been increased since the 1970’s. The business people strongly objected. I tried to make the point, using the federal tax structure as an example, that there could be a way to raise taxes but protect smaller producers. The craft brewer on the committee protested, saying “I pay the same as Anheuser Busch.” This is just not true.

 Since 1976 small brewers have had a differential federal tax rate. The Beer Institute, the large brewers trade lobby, which is pushing the Craft Beverage Modernization and Tax Reform Act, legislation for tax relief, explains the tax structure:

“Existing federal excise taxes on beer are set at a rate of $18/barrel for brewers of more than 2 million barrels (62 million gallons, or the equivalent of 110 million six-packs) and all beer importers. Since the late 1970s, growth in the small brewing sector has been encouraged by tax credits offered to brewers which produce less than 2 million barrels, cutting their excise tax rate to $7/barrel on the first 60,000 barrels and allowing them a far lower overall effective tax rate on all barrels up to 2 million.”

The craft brewer was totally unaware of this. He apparently has software which calculates his tax rate and that is the extent of his knowledge about federal taxes. This points up a problem in messaging since both the Beer Institute and the Brewers Association, the craft brewers trade lobby, are pushing for taxes to be reduced. I am still of the opinion that they are very unlikely to succeed and the fact that brewers on the ground don’t even know it is an issue only strengths my position.