A brewing tax debate

Given the possibility that the federal beer tax may be halved, students' alcohol funds might go just a little bit further.

Sen. Rick Santorum (R-Pa.) has proposed a cut in the federal excise tax on beer. If enacted, the cut would reduce the tax from $19 a barrel to $9 a barrel for breweries that produce over 2 million barrels a year. Smaller breweries will see a similar reduction for every barrel over 60,000.

Santorum proposed the cut due to the "major presence" of the beer industry in the state.

"The industry directly and indirectly accounts for close to 2.5 million jobs nationwide. A reduction of the beer tax would help brewers maintain or grow this work force," Santorum said in a statement.

Santorum spokeswoman Christine Shott said that a cut in the beer tax is overdue. The current rate of $19 per barrel was enacted in 1990.

"Beer was included as a luxury item" in the initial bill, Shott said in an e-mail interview. "The taxes on yachts and other luxury items have since been lowered, and beer therefore should not be the only exception."

Though Shott said the cut is aimed at "moderate and lower-income wage earners," Wharton Ombudsman Bill Whitney, who teaches a finance class, said that the cuts are likely to have little effect.

The cut "will increase revenue for the beer producers and decrease expenditure on beer for the beer consumers and reduce the amount of government revenue," Whitney said. "I don't think the employment effects are going to be very much at all, especially within Pennsylvania."

Locally, smaller breweries like Yard's and Dogfish Head will be negatively affected by the cut, which will benefit only their larger competitors, said Paul Gatza, director of the Colorado-based Brewers Association.

"Our position as an organization is that we would like the differential to be proportionally maintained so that the smaller brewers could halve their tax as well," Gatza said.

Tom Peters, owner of Monk's Cafe in Center City -- known for its extensive collection of beer -- agreed that the cut would likely have little effect.

"I don't think it would affect [business] one way or another," Peters said. "I don't think people base their consumption of alcohol ... on tax."

Peters said that when a liquor tax was enacted at a rate of 10 percent in Philadelphia, a downward plunge in liquor consumption was expected.

"It didn't affect business one iota," Peters said.

In addition, he said that the price of beer would likely not change much -- even for kegs. The tax is based on the barrel, which generally equals two half-kegs.

And the reduction in tax would not necessarily translate to a $5-per-keg discount for consumers.

"My guess is that the breweries might hang onto that money and our prices won't be affected," Peters said.

Still, Whitney said college students could potentially be some of the biggest beneficiaries.

"College students and other young beer drinkers are probably more sensitive to price," Whitney said. "They will probably consume a little more. ... Equally important, they will probably shift up from lower-quality to higher-quality beer."

Ultimately, Gatza said he is not very optimistic about the bill's likelihood of passage "based on years of history and the fact that there aren't that many senators lined up yet, to my knowledge."

Santorum would not comment on the remedy for any loss in government revenue if the proposed reduction is passed.

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