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Brewers besieged; tax increases could gut a thriving industry.

The brewing industry faces challenges on the tax front this spring, as government begins the difficult task of squeezing more revenue out of a slowly recovering economy. The beer industry will watch these deliberations carefully. The revenue option selected, whether increased excise taxes, value-added taxes or some hybrid, could have a severe impact on brewers and wholesalers alike.

This impact could be especially dire for the lower-tier breweries, America's regionals and micros. For many of the smaller brewers among them, an increased excise tax could be fatal, particularly if these breweries lost their small brewer's tax break. Such a development would lead to tragedy on the scale of Prohibition. Old-line regional breweries would be priced out of their own markets, and microbreweries would be strangled in the cradle.

The ripples would effect society as a whole, through failed companies and lost jobs. There would also be other, less tangible repercussions. Regionals and micros have been thriving in recent years because they have provided consumers with something valuable--diverse product choices.

Many old-line regional breweries have been rejuvenated in recent years by the upsurge in demand for specialty niche products. By producing beer that falls outside the mass-market mainstream, these breweries are keeping local brewing heritage alive. These surviving regional breweries have overcome countless hurdles to continue in business. Changing the level of the playing field at this juncture would be extremely damaging, and unfair.

Microbreweries and pub breweries have also risen to play an important role in the evolution of the American brewing industry. By triggering renewed consumer interest in beer, these small plants have an impact far beyond their tiny volume. For consumers who have enjoyed a meal in a brewpub, watching brewers at work behind a plexiglass window, brewing has a human face once more. Through their efforts, small brewers have created new excitement about an old beverage.

Although the impact of an excise tax on smaller brewers would be extreme, larger brewers would not be immune. Anheuser-Busch, in fact, has speculated that the closure of its flagship St. Louis brewery might be necessary. Wholesalers, already squeezed by tight margins, would find profitability ever more elusive.

The likelihood of excise taxes remains an open question, as the debate seesaws from week to week. Lately, the focus has shifted to value-added taxes, and Anheuser-Busch has also floated a third option--a modified VAT called a "business transfer tax."

A-B's proposal is borne of a new pragmatism. Although it is too early to judge the fate of the business transfer tax, it is a sound tactical approach. It provides legislators with a third option, allowing them to avoid the known perils of excise taxes and a value-added tax, while still providing revenue.

Brewers and wholesalers are as conscious of the deficit as other citizens, perhaps more so. As business people, most would not countenance the burden of debt that the federal government is teetering under. The debt must be reduced, through spending cuts and increased revenue.

And, although the viability of the Anheuser-Busch proposal is unclear as yet, it could serve a valuable purpose--Allowing the industry to contribute to the common good, without being destroyed in the process.
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Publication:Modern Brewery Age
Article Type:Editorial
Date:May 10, 1993
Words:526
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