I say raise the tax to $1 per bottle! Of course, I don't drink. ;>)

The liquor lords cry in their beer every year, and then go and print some more money.

I grew up in the liquor business (Leader Liquors, corner of Irving Park Road and Sacramento Avenue in Chicago) and it is truly one business that is recession-proof.

Remember when the Oregon tavern owners whined, cried and sobbed when the state wanted to take a few more cents from their beloved video crack games? Remember when dozens of tavern owners said they would tear out the machines? Guess what? Only one or two did, more than 95% kept the games and paid the state a few more pennies. Why?

Liquor store owners know they have a license to print money, because when was the last time a drug dealer went out of business?

Answer: never.

Since we can't apparently tax beer based on manufacturing location, I wish we could tax based on quality of beer (worse beer = higher tax).

Yes, it might be slightly regressive, but it would help great Oregon microbrews and cost out-of-state crap beer magnates like Pete Coors money.

And yes, I'm happy to serve as the official beer taster determining the tax rate.

Alternatively, we could tax all beer and turn around and subsidize our beermakers. That might be legal.

Chuck,

Instead of just pining for higher wholesale beer taxes, why don't you propose the sort of holistic solution that fiscal conservatives will support?

Everyone knows that Big Beer is "cutting a fat hog" under Oregon's regulatory scheme. But HB 2533 (taxing Oregon-brewed beer consumed in other states) is a ridiculous proposal that will unfairly burden Oregon's microbrews by making them more expensive in other states.

Most people (other than legislators) could care less about the beer lobby's agenda, but they don't see any benefit from just jacking up another tax. You have to offer them something better.

Good proposals have been kicked around for decades now.

See the winning proposal in Cascade Policy's Oregon Better Government Competition in 1994.

http://www.cascadepolicy.org/bgc/orla.htm

Here's how I'd do it:

First, privatize the OLCC liquor distribution monopoly.

Next equalize beer and wine and liquor taxes by only taxing the alcohol in each retail beverage by its volume (results in same tax for an alcohol serving regardless of beverage type).

Set the alcohol tax at a rate designed to break even with current revenues vis-a-vis current consumption rates.

This will lead border residents of Washington, Idaho and Montana to shop for liquor in Oregon to escape their state monopoly pricing. And Oregonians will stop shopping for liquor in California and Nevada.

The result will be higher tax revenues collected through increased liquor sales and a reduction of unnecessary public employees (and the OLCC warehouse can be shut down and sold off).

However, if your only gambit is to retain the ugly status quo and lobby for higher beer taxes, Paul Romain will kick your ass every time.

Drinking beer (back me up now, people) is not a sin, and should not be taxed.

i got your back on that one pal. keep your stinkin' tax mitts off my stout.

3) Drinking beer (back me up now, people) is not a sin, and should not be taxed.

Not a sin. But neither is work, and we tax that. Should we only tax sins? Ideally, yes. But it's a non-starter of an argument.

4) Even at its draconian rate, the tax would only raise $60 million a year.

A dime a beer is not draconian. At a bar, that's 2.5% rate. Not much. Compared to the current non-tax, the percentage increase is high, but you need to look at the actual rate, not the change.

And $60 million IS a lot of money. The R's and D's are fighting over a budget amount of just about twice that -- so half the fight would be over. $60 million can do a lot of good (it's about nine times the budget of DLCD, for example). It's not the biggest chunk of change, but it's plenty to consider.

2) The proposals are aimed to nail the producer, not the wholesaler or retailer. Simple math: a brewer has a tiny profit margin and sells a keg of beer to a wholesaler for about a hundred bucks. Wholesaler loads it up, drives it across town and doubles his money. Finally, the retailer doubles his money by selling it a four bucks a pint. So why are we taxing the guy who's just barely breaking even?

As you say, "simple math," I respond, "simple economics." If the retailer and wholesaler are making out like bandits, the cost will be passed on to them (or more retailers will enter the market). Taxes are borne by those who can't escape them. If the producer really can't escape the tax, and the tiny tax on beer will drive them out of business, we should solve that problem by helping out the business, not rejecting the tax.

1) It targets one of our few, home-grown industries. Why not just tax tennis shoes?--it's as arbitrary as selecting the beer industry.

It's not completely arbitrary. Beer is a luxury good (ok, ok, many of us need it to live, but...).

There are lots of home-grown industries. All should be pitching in. But right now, we have an extremely low beer tax compared to other states, so it's a reasonable thing to look at.

Yes, we want to promote our great beer industry. But no one has demonstrated that we'd kill it through this tax. And this tax: (a) raises $60 million; (b) brings us more into line with other states.

Ok. Here's the economist's point (that also reponds to Torrid Joe's argument): the burden of taxes falls on who can pay it.

Thus, if you tax a dress in a shop, either that tax is paid by the consumer, the dressmaker, the distributor, the store, etc. It all depends on who can pay, and the various elasticities of demand and supply.

Similarly, if you tax beer made by Caldera, then they may either (a) pay it; or (b) pass it on to who they sell that barrel to. The distributor then (a) pays it; or (b) passes on the cost.

Eventually, part of the dime cost will probably reach the consumer. Or not. As I said, it all depends. That the tax is collected from the producer has very little to do with who suffers from the tax in the long run.

Jeff's argument seems to be that the megabrewers can weather this storm better than others, Joe's that the demand is extremely elastic from everyone and that no one but the producer will bear the tax burden. I don't know if either of those are true or not. Anyone got data on demand elasticities?

I miss Rainier Beer.

Generally speaking, beer taxes hurt the wrong guy in the beer chain. If you really want to recoup some of that $4.50 pint of stout, don't tax brewers--tax retailers. (Try getting that past ORA!)

You may call me the Beerax--I speak for the beers.

I concur with Jeff. I don't see the McMenamins Empire crumbling anytime soon.

So do you guys always sit around trying to figure out ways of taking more of other peoples money?

Raise beer taxes? You progressives still wondering why you lost the red states?

You might as well start taxing baby formula.

I completely agree with Jeff on this one. Every legislative session brings yet another beer tax that is ill-conceived and punishes the local breweries too harshly. I’ve sat in on my share of Brewers Guild meetings and I’ve got to say, “Thank god for the Oregon Brewers Guild”. Not only are they able to combine marketing strategies, but also they are able to recognize an unfair tax and work towards fending it off. I don’t see Oregon Brewers as unreasonable beer barons, but instead as people that feel they are doing their fair share.

Oregon loves its beer; it’s one of the industries we are most proud of. The Oregon Brewers Festival is one of the biggest in the world, and we are one of the cities with the highest number of independent breweries per capita in the world. Most of the breweries are relatively small, which gives us a wide variety of style as well as types of beer. The beer culture in Portland brings in its share of tourism, and the average consumer of craft beer are the types of people we want visiting our city: they have a decent source of income, tend to be educated and are generally great people (I base this on 12 years in the craft brewing industry, which took me all over the northwest).

If you are going to sit around dreaming up ways to develop more tax revenue, look at the OLCC; that bloated bureaucracy has got to be useful for something. Seriously though, you’ve got to look at the big picture when you look at the craft brewing industry. I’d hate to see an overbearing tax cripple an industry that does wonders for our economy and image.

Secular governments should not tax "sins", but they should tax activity that has a high social cost, if not to reduce that activity, then to help pay for the cost incurred. Alcohol has a high social cost. This is clear. Alcohol tax can help pay for treatment programs, law enforcement against drunk drivers, and increased medical services the drug necessitates.

I like microbrew and think it is worthwhile to promote Oregon's industry. That should not mean, however, that beer is forever protected from tax increases. I promise to not switch to Coor's, Bud, or Miller if Microbrew prices increase a bit.

Is there a middle ground? Could we increase the tax by 3 cents a bottle, instead of ten cents? Or is it simply: no increase, because any increase will cause the sky to fall and bad beer to rule the land?

Raise the beer tax? Answer me this: WHY is there a "beer tax" in the first place? Isn't a sales tax and an income tax enough? Aren't they fairly applied to all people, to raise revenue for all state projects? There is a beer tax because it was imposed by the government. But there is no logic to a tax specifically on beer, or wine, or tennis shoes. Everyone pays taxes, everyone benefits. Drop all excise taxes, increase sales taxes and income taxes to compensate. That would be fair...but it will never happen, will it? Hey, Jeff. Haven't run across you since hop harvest in Yakima, back in '96. How you been?

We don't think anyones a cheap bastard. Here's the deal so to speak. 85-90% of the beer sold in Oregon is still from large, out of state companies. These companies are represented locally by distributors. In the Portland area each of the big three distributors represents a major brand, A-B(Bud), Miller and Coors. Bud, Miller and Coors do not want their distributors to pay more in taxes, nor do their distributors. Every one of the six large breweries in Oregon(Bridgeport, Widmer, Full Sail, Deschutes, Portland and Rogue) is with a distributor that represents Bud, Miller and Coors. These people are the ones responsible for getting Oregon beer out to the public. The tax proposal would increase the tax by $33.16 a barrel for these large out of state breweries. So let's look at how this tax scenario would play out and what it would really mean. Oregon Brewers produce about 600,000 barrels a year, of which 250,000 barrels a year gets consumed in state. If the "tax" were to increase from 2.60 to 16.58(a nickel a drink)+2.60 this would equal 19.18. Let's call it $20. So the Oregon brewed beer gets to the distributor who is now paying $33 extra per barrel on 90% of what he sells. In other words, the states distributors would now be paying, instead of $6 million a year, they would now be paying $73 million. Guess what, Oregon beer just got hit with not only a $20 a barrel increase but a $33 increase as well. In other words the cost of Oregon beer at the distributor just went up $53. This is the reality of the beer business. Let's look at how the numbers play out. We'll say each barrel of Oregon beer currently goes out to the distributor for $150, the distributor marks this up to $235 and the publican looks to make $700 profit on every barrel so he charges $4.00 a pint. This is the current scenario. Let's look at the tax increase scenario. The distribur now gets his Oregon beer for $170. He adds $30 in tax and does his usual mark up. The price to the publican is now $315. He hopes to make his $700 in profit so now he charges. $4.30 a pint. Have you ever heard of a $4.30 pint? Let's say pints are now $4.50. Let's take a look at the six pack cost. There is about 50 six packs in a barrel so you can see already the price has gone up a dollar at the distributor level. The retailer marks the beer up 33 per cent and now the price has gone up 1.33 a six pack. Not the $0.30 the lawmaker intended.
I could go on all day but I won't. Thanks - Brian Butenschoen Oregon Brewers Guild

And then, the beer drinker goes home and demands his usual markup in allowance from his father, meaning another 1000% increase. Beer ends up costing twelve million dollars a bottle!

Sheesh. Let's have a little intellectual honesty here, and not make spurious arguments.

Nothing spurious at all about the argument. I wish people, especially legislators would be intellectually honest and do the right thing if they want to raise the beer tax, which for them would not be politically expedient.
I'm not even going to go into who pays to lobby the legislature every other year to raise the beer tax, but let's just say their favorite color would not be blue. Politics does indeed make strange bedfellows. Cheers! Brian @ the OBG

What you've done is say a $33/barrel tax means a distributor charges $315 instead of $235. I don't buy that at all.

Brian,

I'm curious, why is it that beer distributors would increase the price of Oregon beer by $53?

I get the fact that the distributor has to pay $20 more for the Oregon beer (if it's from a small-volume producer) and $33 more for the large-volume out of state beer.

What I don't get is why you add $20 to $33 to come up with an overall $53 increase per barrel. If it's a matter of price parity between local and out of state beers, why wouldn't both kinds simply go up by $33?

You said that the markup now is from $150 from the brewer to $235 at the distributor. That's about a 57% markup. Now, the Oregon beer costs $20 more because of the new tax, for $170. I'm not sure where the additional "$30 tax" comes from for that barrel (am I missing something there?) so the 57% markup from $170 is about $267. Which, if you follow through with the publican's markup would bring that $4 pint to not quite $4.10 -- hence, the dime increase for a pint of beer (though if I was a pub owner, I'd bump the price up to $4.25 and get a little extra out of it anyhow...)

So really, the difference here is why the $30 extra gets added at the distributor, when the $20 tax was already paid (and passed along) by the brewer?

I happen to think that this tax increase is a bad idea no matter how the numbers work out (personally, jacking the price of a pint up by even $0.50 or so wouldn't impact my consumption much -- but why pick on the beer industry?), I'm just trying to understand the math involved in your argument against it.

Thanks...

Yeah, Kari, I understand markups. I used the original markup percentage given by Brian in my calculations.

The original markup of 57% from brewer to distributor (i.e., the distributor marks up the brewer's price before passing along to the publican) would only account for an increase to the publican of not quite $32 ($20 brewer-paid tax + 57% distributor markup). That corresponds with Brian's original "distributor price" of $235 going up to my calculated appropriate distributor price of $267 instead of Brian's claim of $315.

Brian said that the brewer's price went up $20 (the original $150 price plus the new tax makes $170), then the distributor added $30, THEN the distributor marked up the result (making $315).

So what's that extra $30 all about? It's not, as far as I can tell, due to this particular tax unless I'm missing something. The brewer already paid the tax and passed that cost along to the distributor, right? That's why the brewer was charging $170 instead of $150 for the barrel in the first place. But then Brian seems to be claiming that the distributor has to pay another $30 in tax on that same barrel. And that doesn't make sense, if the tax is levied at only one point. Or does this proposal levy the tax twice, once at the brewer and once at the distributor?

I've looked up the text of HB 2533 and it says the tax is to be paid by manufacturers or importing distributors. Now, the other conditions in the bill may be a bit vague, but a common sense reading of the bill seems to indicate to me that the intent is to tax a barrel of beer only once. In the case of domestic manufacturers, the manufacturer pays the tax. In the case of imported beer, the importer (distributor) pays the tax.

Perhaps I'm misreading the bill, but I don't take that to mean that a distributor who both imports beer and distributes locally-manufactured beer would have to pay the tax on all beer distributed, but rather only the imported beer that was distributed.

IF my reading is incorrect, then this bill is far, far worse than imagined, because it would have the effect of taxing Oregon beer twice (at the brewer and distributor) while taxing imported beer only once (at the distributor). I can't imagine that would be the intent of the bill.

So back to my original question, why does Brian add a second $30 tax on Oregon beer at the distribution stage?

Wow! First of all, I am impressed that people read what I said and assimilated it and discussed it. Thanks to David, Kari and Jenny for expressing support and some disbelief. Perhaps politico junkies are my new best friends. I would like to stress some points to people. First of all, I read the law to be that the producer pays the tax, which I believe to be true i.e. the beer that's produced in Oregon and distributed in Oregon, the brewer pays the tax. I believe that I am about 95% correct in this assumption. What I would like people to understand is that when a distributor in Oregon is now paying $33 a BBL more on 90% of his product, he is going to pass that cost onto the wholesale price of their product onto the price of all of their products. In other words, the distributors are not going to say, "Hey, we are now paying 1700% more in excise taxes(i.e. $33 more a BBL in excise tax), on 90% of our beers let's not raise the price of Oregon made beer more than the increase they are already paying" i.e. the beer gets to the disributor at $20 more per BBL they are not going to say let's not pass this extra $33 onto them, lets' exclude them. Which is unfortunate but understandable. Am I winning any people over? We rely on distributors to get our beers out to the public. There is information out there on what an excise tax increase means to the consumer done by an Ivy league school. I'll let people dig up that info. I wish I could spell it out more for people. Are there any people with masters degrees or PhD's in Economics? Basically you cannot tax on the producer/distributor level and expect that same amount to appear out in the marketplace. It's unfortunate that people can say and believe that raising the tax at the producer/distributor level equals the same amount that consumers would pay. Also unfortunately it makes a great soundbite becuase it sounds like such a little amount. No offense to my local legislator who loves great local beer. Cheers! Brian

Yeah, I get it, I just don't buy it.

Industries will adjust their markup rates if they need to. That's just how the marketplace works. The distributor isn't about earning X% -- the distributor is about making the largest profit possible in the marketplace, and the X% markup is the shortcut to doing that.

But just because they use a standard percentage markup doesn't mean that the marketplace will buy what they want at the price they're offering once a tax is created. Some distributor will undercut them and win the business.

That is, some distributor will be happy with the $70 on the barrel she used to make, and not jack the price by the percentage rate. She'll adjust her percentage rate down and still make $70.

Of course, that's just how the model works, not necessarily the real world.

If you think there's collusion or undue market power or barriers to entry, which there may be, let's talk about how to break that down, not how a tax is multiplied over and over.

I agree with Jenny, if distributors are able to price as Brian describes, in an apparently highly regulated marketplace, we need to examine the market to see if conditions allow or promote unreasonable business practices.

Brian, I understand what you're saying, but I don't think it makes a lot of sense to run a business that way. Of course, as a wholesaler in an open market if you can get away with raising the price of all products because your cost for some (even a majority) of those products has increased, good for you. But as Jenny said, in an open market you'd likely be forced by competition not to gouge your customers that way.

I used to work for a wholesale company, and I was involved in pricing for the products we sold. Yes, when our cost for the product went up, we'd adjust our price to maintain the desired margin. But we didn't raise prices on all products just because our cost on some products went up.

Now, following your logic, are you saying that if Coors (for example) raises the price of a barrel of beer by $10, then the distributor would raise the price of local microbrews by $15.70 as well ($10 Coors increase + 57% markup)? I mean, I presume that the distributor charges different prices for Coors and for the local beer in the first place, so I just fail to see the logic of increasing the (already distinct) price of one by the (marked-up) increase of the cost for another.

Of course, just because it doesn't make sense to me, doesn't mean it won't happen. But again, if the market environment is such that distributors can price their products this way without fear of losing business, something may be amiss. And whether or not this tax goes through (I still don't think it should), we should look at our regulation of the market to see if perhaps that should be changed.

I can't believe all the good people defending Drug Dealers and their sacred profits. Beer is made with alcohol, one of the deadliest drugs on Earth. Beer makers are lucky we allow them to push their drugs at all. Come on, people, I grew up in a liquor store. I guarantee you Oregon could TRIPLE the beer tax and not one less bottle of beer will be brewed in the state. Where they gonna go? California? Washington? Never.

I guarantee you Oregon could TRIPLE the beer tax and not one less bottle of beer will be brewed in the state

HB 2533 proposes to increase the wholesale beer tax by a factor of thirteen (not three).

Sid, I'd take you up on your guarantee if it actually referred to the bill in question (say in the form of a $100 bet).

But this bill has no chance of going anywhere in current form, so why bother?

Three times bigger? Thirteen times bigger? Who cares? Drug dealing is drug dealing. Read the papers. Drivers drink their lunch, a few minutes later schoolkids and their mothers crossing Foster Road die. I think $10-15 a sixpack for Oregon swillwater is a good place to start, but I grew up in a tavern and saw the damage to society firsthand, and most of you did not.

Sid - You are obviously one of the most progressive minds of 1920.

http://www.cato.org/pubs/pas/pa-157.html

"Drug dealing is drug dealing. Read the papers. Drivers drink their lunch, a few minutes later schoolkids and their mothers crossing Foster Road die."

Come on, man. I'm sorry you saw a seedy side of life working in the tavern industry, but I worked in the craft brewing industry for 12 years and only knew one person that had a DUI. People that like good beer and wine aren't the same as someone that slugs down a bottle of mouthwash to catch a buzz. I feel you have a certain bitterness to your argument that undoubtedly comes from a run in with law enforcement or a rehab program, but don’t try to label everyone as drug using, homicidal maniacs.

Never even been stopped, much less arrested, which is good because if I was arrested or in rehab, like Rush Limbaugh, then I could not have gotten an Oregon teacher license.

Beer and alcohol are drugs. Deal with it. And leave the crystal ball to Wolfie, Rummy and pals. They were spot-on on the war, right, Glennie?

"Never even been stopped, much less arrested, which is good because if I was arrested or in rehab, like Rush Limbaugh, then I could not have gotten an Oregon teacher license."

Limbaugh has an Oregon Teachers License?

"Beer and alcohol are drugs. Deal with it."

I don't mind you calling them drugs, but they are different from other drugs in the way coffee is different from meth. Coffee is an enjoyed experience, as are beer and wine, whereas meth and pure alcohol are nasty drugs that are introduced to your system for the simple reason of getting high. The drug part, for most beer and wine aficionados, is a side benefit to the overwhelming flavor compulsion. Earlier you said that:

"Beer is made with alcohol, one of the deadliest drugs on Earth."

This is not true. Beer is made with water, malt, hops and yeast (in that order). Beer and wine are wonderfully natural and healthy beverages. Alcohol is a much desired side benefit to beer and wine, but another side benefit is flavor. Don’t demean the power of your sense of smell and taste, Sid, they go a long way in dictating what you do in life. They are forces almost as powerful as the need to get loaded, and when you couple one’s enjoyment of flavor, odor and alcohol with another side benefit, social interaction, I’m here to tell you they are some of the best experiences on earth.

I’m sorry about sounding demeaning earlier, but all I’m asking you to do is consider the possibility that some of us enjoy an experience almost as old as mankind itself in a considerate and appreciative fashion. In other words, you can call us all a bunch of druggies, but I think you are seeing everything from a personally distorted point of view.

Just thought I would post one more time. If people really think that if the states distributors have to pay $33 a BBL more in tax and that cost is not going to be passed on to Oregon made beer this is something that can be argued. Maybe not all of this cost will be passed on to local, craft brewers, maybe it will. I, at this point and time, very strongly believe that this additional cost will be passed onto Oregon brewed beer and onto the consumer, if it is distributed through one of the large distribution houses. As far as the whole market/price undercutting thing goes. The large distributors in this state control about 98 or 99% of the market. There is no company to come in and undercut the price and win more business. The prices on craft beer are very similar, and the everyday prices on macro brews are even more similar. Any small distributor in this state would be happy with a 1% share of the market. Of course, going from distibuting tens to hundreds of kegs a week to thousands requires $$$ in infrastructure. What I would like for people to understand is that when legislators say that it's a nickel a drink to raise the tax on Oregon's small producers it ain't never, ever, ever going to be a nickel. Why not be honest about it. Sure it might end up being ten cents or 20 cents a drink. Until this happens or until legislators do the economically obvious but not politically expedient thing, will keep on having this conversation. Cheers! Brian

All of the beer tax House Bills and Senate Bills are tiered (just like we do with Oregon Wineries). Therefore, brewers that produce less than 200,000 barrels per year will pay a discounted tax rate. This protects small businesses. In fact, all of Oregon Breweries produce less than 200,000 barrels. So, they would all get the discounted rate. For the most part the BIG High-Volume-Cheap-Beer producers would carry the burden of the tax. This could actually help Oregon Breweries by leveling the playing field so that they could compete against the cheap-mass-producers (Anheuser-Busch, Millers, Coors and Pabst). Senate Bill 1049 is absolute genius!!