[Congressional Record Volume 142, Number 116 (Thursday, August 1, 1996)]
[House]
[Pages H9825-H9831]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              MIDDLE CLASS TAX RELIEF: REDUCE THE BEER TAX

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Pennsylvania [Mr. English] is recognized for 5 minutes.
  Mr. Speaker, I represent part of Western Pennsylvania, a region which 
gave rise to the Whiskey Rebellion, one of America's first tax revolts. 
Today, working families in our area face a higher tax burden than ever 
before--So I am pleased to introduce today information that provides 
strong support for H.R. 3817, a bill to provide meaningful tax relief 
to average Americans.
  If enacted, this bill will eliminate the $1.7 billion federal tax 
increase imposed on more than 80 million American beer drinkers since 
1990. And with good reason.
  Most working Americans have little conception of the level at which 
they are taxed. Certainly, average men and women know that they pay a 
personal income tax and the FICA tax and they probably notice the state 
sales tax that is levied on many of the products they buy. But these 
taxes are only the tip of the iceberg. It's important that average 
Americans understand how much of the total tax burden they bear is 
invisible to them. I am talking about hidden taxes that are buried in 
the purchase price of products ranging from beer to bread to gasoline. 
Because they are concealed, these taxes engender little opposition from 
the taxpayers. But they contribute tangibly to the cost of living for 
hardworking Americans.
  It is particularly appropriate to look at beer because the weight of 
an unfair tax system is heaviest on average Americans when they lift a 
cold one. The hidden taxes on beer are exceptionally high, and they 
fall overwhelmingly on average Americans who are already doing more 
than their fair share to support the government.
  To fully understand how heavily beer drinkers are taxed, I submit to 
this body a powerful study completed by the economic research firm DRI/
McGraw Hill. According to this analysis, taxes represent fully 43 
percent of the retail price of beer. This astonishing conclusion is 
arrived at by tabulating federal and state excise taxes, state and 
local sales taxes, taxes on corporate and personal earnings, in fact, 
of all the taxes that go into a bottle or can of beer. Not just the 
taxes people see but all the taxes.
  The beer tax is an excellent example of how unseen taxes--taxes that 
don't require government to be as accountable to the public--can lead 
to a misallocation of the tax burden across our society. To appreciate 
this, I ask you to remember the circumstances under which the federal 
excise tax on beer was raised in 1990.
  That year, Congress imposed a tax increase not only on beer but also 
on luxury items. Persons purchasing luxury automobiles would have to 
pay more--as would those buying yachts, private airplanes, furs and 
jewelry.
  While I do not like hidden taxes or tax increases, I understand the 
symmetry of a tax policy that says, ``If we're going to impose a 
discriminatory tax on beer drinkers * * * let's do the same for 
yachtsmen.'' After all, nearly two-thirds of the beer consumed in the 
U.S. is purchased by households earning $45,000 a year or less.
  But, look what has happened since the 1990 tax package was passed. 
The tax on yacht owners has been repealed. So has the tax on private 
airplanes. And so has the tax on people buying jewelry and furs. In 
fact, only the tax on luxury autos remain--and, a few weeks ago, we 
voted to phase out that provision.
  In each case, the rationale offered for removing these luxury taxes 
on unemployment. But that same logic applies to beer. In fact, the beer 
tax increase eliminated tens of thousands of jobs--an impact that 
dwarfs that of all the luxury taxes, combined.
  Mr. Speaker, I suggest that the hidden nature of the beer tax 
increase contributed directly to this unfortunate outcome. If 
hardworking, average Americans knew how much they pay in taxes on 
beer--and if they understood how those taxes cost jobs--the 1990 beer 
tax increase would have been repealed long before now.
  But it is by no means too late to act. By repealing the 1990 tax, we 
can largely undo the damage that was done six year ago. DRI/McGraw Hill 
estimates

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that eliminating the 1990 tax hike would put millions of dollars back 
into the pockets of working Americans who drink beer. It would increase 
beer sales by more than 2 percent--and it would create 50,000 jobs in 
our nation's economy.
  Moreover, the study also found that increased employment, reduced 
demand for Government services, and other macroeconomics effects, would 
offset fully 75 percent of the budget impact of repealing the beer tax.
  I ask my colleagues to consider the evidence, and join with me--and 
with Representatives Ensign, Christensen, and Blute, who are cosponsors 
of this bill--in supporting H.R. 3817.


                         Study Goals and Scope

       The goal of the DRI/McGraw-Hill research was to identify 
     all taxes associated with the brewing industry.
       Tax burdens include: taxes paid at all stages of 
     production, distribution, and sales; taxes related to sales, 
     income, profits, and payroll; taxes paid to Federal, state, 
     or local governments.
       A standard procedure was adopted to obtain reliable, 
     consistent study results.
       The data sources for the calculations are public, published 
     information primarily from the Department of Commerce and the 
     Internal Revenue Service, allowing confirmation of the 
     conclusions by any interested parties.
       Economic value-added components and taxes are presented in 
     both absolute magnitudes (billions of U.S. dollars) and 
     proportions (shares of value added and effective average tax 
     rates.)
       1993 was the most recent year for which all necessary data 
     was available, thus this is the reference year for all 
     computations.


                          Summary of Findings

       The tax burden borne by beer consumers is far higher than 
     average for the U.S. economy.
       Taxes represent 43 percent of the retail price of beer. In 
     comparison, total Federal, state, and local taxes equal 30 
     percent of final sales of all products [GNP] in the U.S. 
     approximately 20 percent at the Federal level and 10 percent 
     at the state-local level depending on the year.
       In the reference year (1993), taxes on beer raised just 
     under $21 billion. The income generated by beer industry 
     manufacturers and related sales and distribution partners 
     added $8.6 billion in Federal personal income, profit, and 
     payroll revenues and $2.6 in similar state-local revenue. 
     Sales and excise taxes on the beer value-added chain added a 
     further $9.1 billion to government coffers.

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                              Methodology

       This DRI/McGraw-Hill study identifies the economic value-
     added chains and tax burdens of the beer industry. Data taken 
     from a variety of sources including the Bureau of Economic 
     Analysis [BEA] National Income and Product Accounts, the 1993 
     Internal Revenue Service [IRS] Corporation Source Book of 
     Statistics of Income, and the BEA's most recent Benchmark 
     Input-Output Accounts of the United States were utilized to 
     calculate the value added and associated tax burden along the 
     process of production, transport, and distribution.

                      Description of summary table

       The table which precedes this section of the report 
     contains three sections: Tax Burdens Through the Production 
     Chain, The Value-Added Chain, and Tax Dollars Paid as a 
     Percent of Value Added. The first section, Tax Burdens 
     Through the Production Chain, is a compilation of tax 
     calculations from the supporting table contained in the Data 
     Appendix which follows. ``Sales and Excise Taxes'' in the 
     summary table were taken from the columns labeled ``Total 
     Taxes: Indirect'' on page 2 of the supporting table. Taxes 
     associated with retail beer sales are the sum of on-premise 
     (eating and drinking establishments) and off-premise (grocery 
     and liquor stores) activities. The ``Income, Profit, and 
     Payroll Taxes'' in the summary table represent all other 
     taxes as calculated in the tables in the Data Appendix. 
     ``Total Taxes'' on the summary page are equal to the ``Grand 
     Total'' as found in the supporting table.
       The middle section of the summary table, The Value-Added 
     Chain, was also taken directly from the supporting table, and 
     is discussed at length below. In each step of producing, 
     transporting, and distributing beer to the consumer, value 
     is added through the employment of workers, the 
     depreciation of capital, and the realization of profit. 
     Each line item, in billions of dollars, represents a 
     portion of the total final national expenditure for beer.
       The last section of the summary table, Tax Dollars Paid as 
     a Percent of Value Added, simply divides the values in the 
     first section by the values in the second. This section 
     indicates the relative tax burden that the beer industry 
     bears at each stage of production and distribution. For 
     example, 43 percent of the total value added to the economy 
     by the beer industry represents taxes of one form or another. 
     A large portion of the taxes on the beer industry are paid at 
     the prouder level.

                  Description of supplementary tables

       The top-line number used for the beer industry is a total 
     domestic consumption 1 number for the year 1993. (See, for 
     example, page 1, cell B17 of the supplementary table 
     entitled, ``Brewing Industry Data Appendix''.) For beer, the 
     dollar values for total consumption--which include both at 
     home and restaurant expenditures--were sourced from the 
     National Income and Product Accounts, ``Personal Income and 
     Outlays,'' produced by the BEA.
       In order to arrive at a domestic production and 
     distribution number--i.e., how much U.S. companies produce 
     and distribute--we adjusted the total consumption number by 
     subtracting imports and adding in exports. The source for 
     these trade figures is the publication Trade and Employment 
     produced jointly by the Bureau of the Census and Bureau of 
     Labor Statistics.
       The total consumption number adjusted for trade for each 
     good was then decomposed into its value-added chain, i.e., 
     producer's contribution, transportation services, wholesale 
     services, and retail services. For beer, the producer's 
     contribution is the 1993 shipments value from the Annual 
     Survey of Manufacturers prepared by the Bureau of the Census. 
     The input-output accounts were again used to estimate the 
     transportation, wholesale and retail services along each 
     product's value-added chain.
       The producers' contribution to value added includes the 
     value added of all suppliers to the manufacturer. These 
     inputs are then further detailed in the bottom half of the 
     beer industry table with the distribution among the various 
     inputs derived from the input-output accounts. The value of 
     these inputs depreciation and other small value-added 
     contributions of the manufacturer are reported as ``Other 
     Value Added.'' For example, in the supplementary table for 
     the brewing industry, the value of beer shipped by 
     manufacturers is roughly $17 billion. ``Other Value Added'' 
     is $13 billion of which approximately $10 billion is brewing 
     inputs detailed in the lower half of the table.
     Taxes on labor
       Labor compensation was calculated as a portion of industry 
     output and each associated link along the value-added chain. 
     Wages and salaries (taxable compensation) were taken as a 
     percentage of total labor compensation calculated through 
     statistics presented in the National Income and Product 
     Accounts. Effective tax rates for Federal payroll and income 
     and state and local income for 1993 were multiplied by wage 
     and salary compensation, and are listed under the ``Taxes on 
     Labor'' columns, specified in millions of dollars.
       Effective tax rates were calculated as the gross tax 
     receipts as documented by the National Income and Product 
     Accounts divided by the relevant tax base developed by DRI/
     McGraw-Hill. For example, the average Federal personal income 
     tax rate for 1993 was 11.7% Marginal Federal tax rates begin 
     at 15 percent and rise to 39.6 percent, but exemptions and 
     deductions reduce the ratio of taxes to income to 11.7 
     percent. Similarly, tax credits and other adjustments reduce 
     the effective Federal corporate income tax rate from the 
     statutory 35 percent to a 32.2 percent effective average 
     rate.
     Taxes on profits
       Profits were calculated as industry-specific percentages of 
     revenue based on data in the Corporation Source Book of 
     Statistics of Income compiled by the IRS. These profit 
     margins were then multiplied by the revenues associated with 
     the calculated value-added components. Federal, and state and 
     local profit taxes are taxes on corporate profits. Federal, 
     and state and local taxes are taxes on dividends and capital 
     gains realized by shareholders; we estimated these dividends 
     and gains as corporate profits minus taxes. As noted above, 
     the effective average tax rates were calculated by DRI/
     McGraw-Hill using inputs from the National Income and Product 
     Accounts.
     Tax on other value added
       Other value added includes items such as depreciation and 
     non-corporate income, and represents additional taxable 
     output to the economy. Depreciation, for example, represents 
     capital expenditure and thus, income to firms that provide 
     related goods and services. Effective Federal and state tax 
     rates that are applied to the general economy were multiplied 
     by a calculation of other value added along the relative 
     production chains for each analyzed industry.
     Indirect taxes
       Indirect taxes represents all sales, excise, and product-
     related taxes. Sales taxes and non-tax government payments 
     (e.g., licenses, fees, penalties) were calculated as a 
     percentage of total output through input-output accounts, 
     with the exception of retail taxes. These taxes were 
     calculated based on tax rates presented in a study by the 
     Institute on Taxation and Economic Policy. Product-related 
     taxes (e.g., alcohol) were calculated from reliable industry-
     specific literature.

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