(Published on LinkedIn)
As we bask in the glow of the longest economic expansion on record, alcohol consumers will soon be parting with some of their capital, as several factors contribute to rising beverage prices. Along with the possibility of tariff implementation on the European Union, the United States government will be initiating a new taxation policy on alcoholic beverages in 2020. While there have been several changes to the tax code regarding alcohol levels in wines and craft beer, the further modifications faced by the industry at this juncture will undoubtedly increase the amount paid by patrons of any business where alcohol is sold.
At the beginning of the new year, there will be a 25 percent tariff implemented on all food and beverage products originating from the European Union, if the current course of policy holds. Food items such as Parmesan cheese and Chablis will see noticeable increases, as the U.S. government imposes a new round of import penalties aimed at leveling the playing field for American businesses. This skirmish has its roots in the aviation industry, where the American government has been complaining about subsidies the European Union grants Airbus, leveraging an unfair advantage against the Boeing corporation. This has manifested itself in tariffs on imported food and beverage items, including alcohol products up to 14% alcohol by volume. Taxes and tariffs based on alcohol by volume level originates from a time when only dessert and fortified wines attained such a higher level, which has changed dramatically over the past 30 years. Some wine regions with warmer growing conditions will avoid this round of tariffs due to their alcohol levels being above the stated taxation limit, a situation that used to be quite rare in the wine world. However, regions such as the Loire Valley and Burgundy often produce wines that fall well under the 14% limit due to their northerly latitude, having fewer sunshine hours. Importers of these fine wines will increase prices significantly and the food & beverage industry will see a rise in both retail and restaurant pricing. If those tariffs are imposed, the American consumer will be paying the difference and many alcoholic beverages will be drastically higher when the new year rings in.
2020 will bring with it a modification of the U.S. governments taxation policy regarding alcoholic beverage production, as the administration seeks to increase the levels currently paid by producers. These changes will yield an additional 10 billion dollars in federal tax revenue annually for the government’s coffers, while patrons of restaurants and retail stores dig a little deeper in their pockets to afford their adult beverage of choice. Especially harsh will be the new tax rate levied upon beer producers, as their federal taxation will double on the first of January. Many producers have come out against any increases, as the effect will equate to the reduction in health benefits for employees, the inability to reinvest in the operation and less likelihood of business expansion. As the economic growth in America starts to recede, an increase in operating costs would have a detrimental effect on the trajectory of the hospitality industry. Additionally, the congressional report cited the social costs that alcohol consumption causes society and states that the increase of taxes could cause lower consumption rates among the population. So, is it tax revenue or social responsibility behind the reasoning for such policies being instituted? Whether or not those reasons are justified is up to the voters, however, there is no denying the outcome for consumers: higher prices on their food and beverages of choice.
The new year will bring with it an increase in alcoholic beverage prices across the country. The retail and restaurant industries will bear much of the impact, having to raise prices to maintain the profit margins that they aspire to. Americans will be faced with the choice of paying more for the beverage of choice, changing their ordering habits or simply not patronizing their favorite establishments anymore.
Works Consulted
1. Asimov, Eric. Expect Higher prices on Lighter Wines. NY Times. 10/8/19.
https://www.nytimes.com/2019/10/08/dining/trump-tariffs-wine.html. Accessed 12/9/19.
2. Congressional Budget Office. Increase All Taxes on Alcoholic Beverages to $16 per Proof Gallon and Index for Inflation. 12/13/18. https://www.cbo.gov/budget-options/2018/54815. Accessed 12/12/19.
3. Weaver, Stephanie. Brewers will face increased taxes on January 1. 12/5/19.
https://kvoa.com/news/2019/12/05/brewers-will-face-increased