For once, Washington has been grappling with issues nearly as big as those faced by their constituents. We face a high-stakes election in November, fierce battles over abortion laws and immigration policy, and a turbulent economy — and those are just the domestic problems. The foreign aid package passed by the House exports $95 billion in U.S. tax dollars and potentially imports many issues that carry global consequences.
Exports and imports lie at the heart of political issues, infamous to obscure. The finer points of liquor trade policy may seem like small potatoes in comparison. However, the comparatively smaller problem yields a simpler solution: Congress should think twice about passing the Duty Drawback Clarification Act, which would hand a cushy tax break to multinational liquor companies at the expense of American businesses and taxpayers.
These bills have received little attention — and the multinational liquor industry now aims to bury its provisions in a larger, year-end tax package. Members of Congress who want to keep money in taxpayers’ pockets and help small businesses compete will reject this idea, which grows worse with age.
Here’s the technical background: To levy tariffs on goods, trade officials keep track of exports and imports by using a Harmonized Tariff Schedule (HTS). The U.S. government assigns each product a unique, 10-digit HTS code based, in part, on its category of merchandise.
Kentucky bourbon and Irish whiskey are two different products, so they have different HTS codes. However, the multinational corporations that import those products want to make the code uniform, even though corn and barley are about as interchangeable as apples and oranges. Changing the code to pretend that these products are the same continues years of bad policies by allowing large corporations to trade any item in their portfolio of brown liquor products without paying applicable tariffs, duties, taxes or fees.
Federal tax policies have long favored Big Liquor. In 2020, the hard liquor industry received a generous tax break through the Craft Beverage Modernization and Tax Reform Act. Federal law also allows liquor companies to avoid taxation through considerable excise tax loopholes for liquor imported through U.S. territories (known as the rum cover-over) and the credit for liquor flavored with wine.
These seem like small matters, but they offer a big leg up to powerful industry players at the expense of American small businesses that cannot as easily leverage international commerce to sell their products. Directing trade officials to pretend there’s no difference between a Bushmills or a Buffalo Trace also blurs reality and undermines American competitiveness on the world stage. In a time of massive national deficits, we need a trade policy that spurs economic growth and doesn’t add billions more in giveaways to the tab.
This isn’t the first time Washington politicians have rigged the tax code to favor large whiskey distillers over small whiskey producers. A scheme to pay off Revolutionary War debts by jacking up the whiskey tax triggered the Whiskey Rebellion. These 18th-century Americans (rightly) believed the tax fell disproportionately on the poor, squeezing large distillers’ competitors out of business. We can’t imagine revolting over a sin tax today, especially with other, larger threats at our door. However, their message, if not their means, remains sound: Picking winners and losers in the tax code, especially when coupled with overspending, is the antithesis of American values.
Aside from business ethics, any tax benefit for alcohol carries moral ramifications. Americans learned through painful experience that prohibition is not the answer to alcoholism and addiction. But if prohibition is not the answer, neither is promotion. That is doubly true when the intervention would water down competitiveness while the economy is on the rocks.
Members of Congress should sober up and keep this sweetheart deal for Big Liquor from becoming law.
