Five Things I have Learned This Week #12

1 — Ronald Reagan was wrong. His small Government ethos was most famously encapsulated in the quote: “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help”, offered up at a press conference in 1986. Former President Donald Trump certainly styled himself as the natural heir to Reagan’s agenda, but on 27th December 2020 (a mere ten days before his supporters stormed the Capitol), he signed into law a permanent extension of the 2017 Craft Beverage Modernization and Tax Reform Act (CBMTRA).

The original passing of the CBMTRA was part of the bumper set of tax cuts (c. $1.4trn) President Trump signed into law in 2017, but was originally only due to last two years. Already extended once by 12 months, the CBMTRA is now permanently on the statute books. The Act is a weirdly wonderful piece of legislation, bringing both equality and enhanced competition at the same time.

Looking at equality first, the US Federal Government taxes alcohol in a very similar way to the UK. First it divides booze up into its various categories (beer, wine, spirits etc.) and then it applies an excise rate to either the volume bought (beer, wine) or the absolute amount of alcohol in the bottle (spirits). But what it also does, is apply a different rate depending on how much you produce.

The craft beer boom in the US has many sources, but one of the most important drivers was when in 1976 Congress passed into law a lower rate of excise for small brewers. This lower rate was initially set at $7 a barrel for the first 60,000 barrels produced, against $9 for everything over; a 22% reduction. However craft spirits producers had to wait until the 2017 CBMTRA to receive a lower rate. The now permanent legislation gives small spirits (and wine) producers the same kickstart beer received 45 years ago.

The initial motives for launching the bill are unknown, but the outcome was one of the most interesting ground up producer movements of the twentieth century. The number of craft breweries exploded and the diversity of beers was envious. I love a Bud Lite as much as Tim Hayward (see edition #9), but I can’t deny the huge benefits of the thriving economic sub-culture that is the US craft beer industry. The competitive pressure craft breweries put on big, entrenched players has only been good for the consumer.

Competition (so beloved of Government-hating Reagan) will still exist without this kind of legislation, but it’s a fantastically easy way to help startup enterprises get going. More than that, due to the US’s frankly bonkers system of regulating the way alcohol is sold (short story — it’s done state by state and so the effect is the US must be viewed as 50 independent countries for the purposes of selling booze), on site tap rooms were a vitally important part of a small producer’s P&L. With their closure during COVID, a lot of companies would have closed without a little help from Uncle Sam, given in the form of extending a tax break.

2 — The 1976 bill lowering small brewery excise tax was sponsored by Jake Pickle, a Democrat from Texas. In a 32 year career in the House of Representatives, it was the only bill Representative Pickle ever sponsored, suggesting it was a personal crusade for him. However, I can’t find any information on why he brought the bill to the floor; it’s not even mentioned on his Wikipedia page. The bill did gain cross party support as it was signed into law by Republican President Gerald Ford, but the specifics of what Pickle’s motivations were remain a mystery. We can’t ask Pickle himself as he died in 2005.

Which is doubly sad as he sounds great fun. He was one of only eight Southern Democrats to vote for the Civil Rights Act in 1976 (out of 92 — the Democratic Party controlled the South back then), and his main campaign trick was to hand out squeaky pickled cucumber toys at rallies.

Jake Pickle hands a squeaky pickle to Coretta Scott King, Martin Luther King’s widow, at a campaign rally in Austin, Texas in 1976

3 — Despite not having politicians of the calibre of Jake Pickle, the UK has made some inroads into levelling the playing field for small producers, but only if you make beer. If you produce spirits, cider or wine, then you are playing with the big boys. More on this in a later episode as it has become a fascinating rabbit hole.

Samuel Johnson’s dictionary was not explicitly impartial

4 — Arguments over Excise taxes are nothing new. The first edition of Samuel Johnson’s Dictionary, published in 1755, defined Excise as:

“A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid.”

The Commissioners of Excise considered this libellous, but Johnson refused to remove it. Writing 20 years later in 1776, Adam Smith’s The Wealth of Nations makes a more sober comment about Excise:

“It has for some time past been the policy of Great Britain to discourage the consumption of spirituous liquors, on account of their supposed tendency to ruin the health and to corrupt the morals of the common people.”

Whither the Scottish Enlightenment, you might say, but it’s interesting he makes the connection between a Government attempting to curb the ruinous excesses of its people and the excise tax system. Prior to the 20th Century, collecting taxes was a difficult and somewhat dangerous profession and so any taxes that are easily collectible were highly valued by the Government — see the window tax for details. Excise taxes were a lot easier to identify and collect in the 18th Century than today’s juggernauts of VAT and income tax, but even so Smith makes the connection with Government public health campaigning.

Whether or not the Government of the day thought of taxes as revenue first, nudge theory experiments second, it’s hard to say. But I do wonder if Smith’s comment is the first instance of someone using taxes as a means of promoting good citizenship, rather than just funds for the war chest.

5 — As it’s my birthday, here’s my absolute favourite story about skiving off. In the late 1980s, Malcolm Gladwell was working for the Washington Post. As a junior reporter, he was often sent to cover stories that didn’t interest him, which included the weather. A hurricane was due to land in the coastal town of Columbia, North Carolina and he was duly despatched. To ensure he was never again sent off to cover a weather event, he concluded that if he messed this simple task up so badly, in such an amateurish way, that to fire him would be like shooting a puppy, he pulled off an outrageous stunt. He booked a ticket to Columbia, South Carolina, 120 miles from the coast, and 300 miles from Columbia, North Carolina.

He had a call with the newsroom, “I don’t know what the fuss is about, the sun is shining, the weather is lovely.” He wasn’t sent to cover hurricanes again.

https://paddy-fletcher.medium.com/five-things-i-have-learned-this-week-12-8d1ced26a68