FairWarining Reports

Tax Break for High-Alcohol Wine Sours Health Advocates

(Patrik Stednak/iStock)

Winemakers could soon receive a tax break that would spur production of higher-alcohol wines, a move that would pad their bottom lines but that has health advocates seeing red.

The proposal, which has strong bipartisan support in Congress, would cut taxes by 50 cents per gallon on wines with high alcohol content. Wineries that now take steps to reduce the alcohol level of some wines, avoiding the tax, would no longer need to go to that expense.

“Overnight,” said Michael Scippa, public affairs director for the Bay Area-based advocacy group Alcohol Justice, “people would have about 18 percent more alcohol in the same glass of wine they’re now drinking. The health implications of that are serious.”

Tucked into a larger bill that would provide across-the-board tax cuts for craft beer and liquor distillers, the break for winemakers focuses specifically on reducing taxes for those producing a stronger product.

At the heart of the matter is a quirk of oenology. For generations, most wines contained less than 14 percent alcohol in their natural state. But as public demand has grown for fruitier, more robust wines, many vineyards have let their grapes ripen longer, increasing the sugar content, and correspondingly, the concentration of alcohol.

Now, some wineries take the intensified crush and quietly use reverse osmosis or steel devices known as spinning cone columns to reduce the alcohol content.

The pending legislation would drop the federal tax from $1.57 to $1.07 per gallon for all wines with 16 percent alcohol or less. That’s the same rate that has applied for decades to wines 14 percent or less. The action could significantly increase the level of alcohol consumers imbibe since there would no longer be a financial incentive to reduce the alcohol level to 14 percent or less.

Trickle-down economic impact

The Wine Institute, an industry group supporting the legislation, had no comment on possible health impacts.

Supporters say the bill would have a trickle-down economic impact. The savings on taxes, they contend, would provide a financial stimulus for the beverage industry. The federal excise tax for small craft brewers, for example, would be cut in half to $3.50 per barrel on the first 60,000 barrels, and lowered from $18 to $16 a barrel for larger producers (A barrel of beer contains 31 gallons).

Oregon Sen. Ron Wyden, a principal sponsor and the top Democrat on the Senate Finance Committee, which oversees alcohol taxes and regulations, did not respond to a request for comment. But in a press release when he introduced the bill in January, Wyden said: “Oregon’s economy earns significant benefits from the jobs and small business growth created by our state’s world-renowned craft beer, wine and spirits producers…This bill would ensure these industries no longer face the unfair burdens of Prohibition-era rules and taxes.”

In April the trade group WineAmerica gave Wyden its 2017 Grape and Wine Public Policy Leadership Award, calling him a ”tireless supporter of the American wine and grape industries.”

The trouble with the bill, said David Jernigan, director of the Center on Alcohol Marketing and Youth at the Johns Hopkins Bloomberg School of Public Health, is that “the trickle in this case is not about an ordinary consumer product, it’s about a product that kills 88,000 people a year in the U.S.” He was referring to a Centers for Disease Control and Prevention estimate of deaths due to excessive alcohol use.

Of particular concern to health advocates is the provision for winemakers that lowers taxes for stronger wines.

Said Dr. Ana Baylin, an associate professor at the University of Michigan School of Public Health: “If you increase the percentage of alcohol in wine and people are used to a certain volume, I really doubt that they are going to correct their usual volume based on the increased percentage.”

Bipartisan backing

Yet even in this hyper-partisan era, The Craft Beverage Modernization and Tax Reform Act is currently co-sponsored by 25 Democratic and 18 Republican senators.

A corresponding House bill, is sponsored by Republican Erik Paulsen from Minnesota and is currently co-sponsored by 97 Republicans and 74 Democrats.

The legislation is supported by the Wine Institute, which represents the California wine industry, and by beer and distilling lobbying groups.

The Congressional Budget Office has yet to submit a cost estimate on the amount of tax revenue that would be lost if the bills become law.

Most wines now have an alcohol concentration of 14 percent or less, according to federal tax statistics. Some of these wines fall within that limit as a result of technological assistance, but it’s uncertain how many because there are no official statistics.

Researchers at the University of California, Davis Center for Wine Economics say that since 1980, there has been “a substantial rise in the sugar content of wine grapes in California,” by far the largest growing area in the nation, with about 85 percent of U.S. wine production.

As a result, the researchers said in their 2011 study, a “significant effort is being spent in wineries to remove alcohol from wine,” adding that it was “possibly because of tax implications.”

Since the early 1990s, spinning technology has been used to separate alcohol from wine, but many winemakers are reluctant to disclose that they employ this or other methods, since it would undermine the image of wine as a purely natural product.

“Consumers don’t get the information they need to make informed decisions about drinking,” said Jernigan of Johns Hopkins. “One way that that information currently comes across is through the tax code because the tax code prices differently wines of different strengths. Now they’re going to lose even that.”

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About the author

Paul Feldman is a FairWarning staff writer.

4 comments to “Tax Break for High-Alcohol Wine Sours Health Advocates”

  1. jim

    Chris, your criticism is very clever, but completely vacuous. The fact that the 14% threshold was developed “decades ago” is irrelevant. It keeps the alcohol content in over 90% of wine below 14%. When, where, and why it was developed doesn’t matter in the least.

    You bring up a great example though with Barefoot Chardonnay. Its owned by Gallo. In 2005 Gallo filed a request that the TTB (BATF) allow them to do less paperwork when they reduce the alcohol in their wine:
    https://www.ttb.gov/nprm_comments/ttbnotice17/017td0004.rtf

    So, yeah, Barefoot Chardonnay is a great example. Good point.

  2. Chris

    This is a very biased article. The 14% alcohol tax rate is an arbitrary number that was developed decades ago. Many wines currently are above this number already. While there is a tax implication, most wineries use the de-alcoholization technology to balance their wines, not to avoid taxes. For example, it is highly doubtful that Barefoot Chardonnay, the most popular wine in the United States, would raise its current alcohol rate from 13% to 14.1% because that would significantly change its taste in a way that many loyal customers would not appreciate.

    Additionally, every wine is required by law to have alcohol content by volume on the label. Customers can take that into account when purchasing or drinking the wine.

  3. Barry Clark

    The article talks about how the bill, if passed, would spur the production of higher-alcohol wines and increase alcohol (ethanol) consumption. I think another part of the bill is even more problematic. The bill would cut taxes by 80% on small and medium distilleries.

    Taxes aside, the cheapest alcohol “fixes” are some vodka and gin products. For a given amount of alcohol (ethanol), they are cheaper than beer. Small liquor producers often buy almost pure alcohol from a large agricultural producer, such as Archer Daniels Midland, and dilute it with water. For gin, they also flavor it, and may further distill it. They brag endlessly about the quality of the water they add, but the artisanal part is the marketing.

    The hard liquor excise tax is on the alcohol content. It is a larger percentage of the price of cheap booze. Small and medium producers will maximize the competitive advantage the tax cut gives them. They will flood the market with cheap vodka and gin, made cheaper by the tax cut. Hard liquor is price elastic; lower prices increase the amount that people buy. In other words, more alcohol consumption and the problems that come with it.

  4. Barry Clark

    Wyden’s press release referred to “our state’s world-renowned craft beer, wine and spirits producers.” Every member of Congress that is sponsoring the bill (217 at last count) says the same thing about their state’s booze producers. It gets tiresome pretty quickly. But the gushing about booze producers and support for a tax cut should not be surprising considering that the industry gives $ millions in political contributions and spends $ millions on lobbying each year.

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