As a conservative who has spent 24 years in the beverage industry, I don’t expect the government to give me special treatment. But I also don’t want the government granting unfair advantages to our competitors, especially when the competition is large, entrenched multinational corporations. If you’ve ever descended into the dark depths of the U.S. tax code, you know that it is full of handouts for big corporate interests at the expense of the little guy. The first step to changing that is to bring this bad policy out into the open and kill it.
Case in point: the foreign liquor loophole.
Missouri is home to more than 100 active craft distilleries, contributing more than $150 million to our economy. These businesses are owned by entrepreneurs who are committed to carrying on the tradition of quality spirit production in our state. I see it firsthand in my work selling Missouri-made spirits for a southern Missouri distillery. For centuries, distillers have been making fine whiskeys from a short list of elemental ingredients: cereal grains, water, yeast, and so on. Craft distillers in Missouri participate in this alchemy, making delicious new offerings from these simple ingredients year after year.
Section 5010 of the tax code, better known as the foreign liquor loophole, doesn’t do anything to help these traditional craft distillers. It offers tax breaks for liquor producers who fill their bottles with additives like wine, often a fruit-processing byproduct, or alcoholic flavorings. The biggest beneficiaries of this carveout are big multinational liquor conglomerates that operate on massive scales and therefore see massive savings.
The result is that two bottles of whiskey—one from a Missouri distillery and the other from a mega-corporation—can sit side by side on the liquor store shelf, and only the latter scores the tax break. As a consumer, you don’t have any way to tell the difference. The liquor looks the same to the naked eye and there are no requirements to disclose the practice on the bottle’s label.
The enforcement of this tax credit further favors companies operating overseas. The Treasury Department’s agents only have the authority to perform onsite inspections at production facilities in the United States. This means operations abroad are held to less scrutiny. Plus, some foreign nations allow more of this additive content than the U.S. does, further disadvantaging American distillers.
It’s hard to think of a better example of everything that’s wrong with our federal tax code. The foreign liquor loophole has been benefitting multinational corporations at the expense of traditional craft distillers since the 1980s, and little has been done to fix it. This year alone, it will cost U.S. taxpayers more than $200 million. Over ten years, that cost is projected to reach $2.5 billion.
Americans are completely fed up, which is why so many of us voted for President Trump. The deck has been stacked against small business owners for too long. The only way to fix it is to identify these nonsensical policies tucked into the voluminous tax code and cut them out one by one. The foreign liquor loophole is a particularly egregious and irksome example of what I’m talking about. I urge our Missouri delegation to support the repeal of Section 5010 and keep going until the tax code treats all businesses—large or small—fairly.
Michael Meyer spent 24 years in the beverage industry, specializing in marketing, promotions, and entertainment. Today, he works in sales and promotions for a southern Missouri distillery, representing Missouri-made distilled spirits and building new business relationships.
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