Lawmakers have not renewed the collection of disparate tax breaks known as “extenders” on time since the 1990s.
But the pandemic-driven economic collapse, along with big-time political support on both sides of the aisle for industries ranging from craft breweries to airlines, is driving potentially timely completion of an extenders package after the elections.
Thirty-three tax breaks got a two-year extension, retroactive to the start of 2019, in a spending bill enacted last December. A handful more were added in March as part of a big coronavirus relief package; the shaky economic recovery means those provisions are likely to be revisited as well.
Typically, lawmakers don’t trip over themselves to renew the extenders on time because average taxpayers won’t be affected by their expiration until filing season the following year. If a provision expires on Dec. 31, 2020, taxpayers usually can still claim the break on their tax returns due April 15, 2021. It’s not until the following tax season that extenders’ absence starts to pinch.
But it doesn’t always work like that, and that’s particularly true for industries that pay excise taxes, which are due quarterly or even semi-monthly in some cases. So thousands of craft brewers, wineries and distillers would have to pay higher taxes as early as April if Congress doesn’t extend their break beyond Dec. 31. Larger producers that pay twice a month, who currently get a break on a portion of their volumes, would have to start paying higher rates at the end of January.
No matter their size, eligible brewers, vintners and distillers would have to start making cost-cutting decisions soon in anticipation of higher taxes early next year.
Bracing for higher taxes would come on top of financial hardships that producers are already facing. “What we’re hearing from our members is the next three months are critical,” said Bob Pease, president of the Brewers Association, which represents craft producers.
The industry had been on track to add hundreds of new members this year until the pandemic hit, Pease said. Instead, perhaps 200 have gone out of business and many more are on the cusp of failure. If the tax break expires for these brewers, who sell on average about 3,000 barrels a year, their excise taxes would double from $3.50 to $7 a barrel.
“We cannot afford, our economy cannot afford, to raise the excise taxes on 8,000 small businesses,” Pease said. “They are bleeding money.”
A one-year extension through 2020 of the reduced taxes on beer, wine and spirits producers saved the industry nearly $1 billion, according to the Joint Committee on Taxation.
In the case of the airlines, aviation excise taxes on things like jet fuel and passenger tickets are due semi-monthly as well. The March coronavirus aid package suspended those taxes through December, saving airlines $4.3 billion, the JCT said.
The industry is now pleading for a $28 billion cash infusion to tide them over through March. If lawmakers don’t preemptively keep the tax suspension going as well, there will be pressure to use a lame-duck package to prevent an airline tax increase starting in January.
Adam Michel, a senior analyst at the Heritage Foundation, generally takes a dim view of the annual extenders ritual as a “pork”-filled lobbying extravaganza. But he conceded that a few “more politically relevant” provisions could drive passage in the lame-duck session, namely the beverage and airline breaks.
The appeal of avoiding a year-end tax increase on 20,000 small breweries, wineries and distilleries could be incentive enough, Michel said, adding that the aviation tax suspension could also prove a “big motivator” for lawmakers.
Senate Finance Chairman Charles E. Grassley, R-Iowa, told reporters last week that tax extenders were one of the few areas in which bipartisan consensus could be reached this year. He specifically mentioned the pending expiration of reduced taxes on craft brewers.
“The one that we most hear from Iowa is we’ve got a lot of craft beer industry in Iowa and so they enjoy a lower tax rate than beer generally,” Grassley said. There are 105 craft breweries in Iowa currently benefiting from the 50 percent excise tax cut for microbreweries, taprooms and brewpubs that expires Jan. 1.
Grassley’s House Democratic counterpart, Ways and Means Chairman Richard E. Neal of Massachusetts, is a longtime industry backer. After Neal introduced legislation in 2013 to lower taxes on craft brewers, Boston Beer Co. founder Jim Koch, whose company brews Samuel Adams beers, was among those lavishing praise. “Small brewers in America have no better friend and champion than Richard Neal,” Koch said at the time.
And the wine industry has no better friend than Rep. Mike Thompson, D-Calif., who represents Napa Valley and part of Sonoma and is chairman of the Ways and Means Select Revenue Measures Subcommittee. Thompson is also co-chairman of the Congressional Wine Caucus, and he was “instrumental” in getting the provision extended last year, according to a Wine Institute statement at the time.
Rep. Ron Kind, D-Wis., a senior Ways and Means member and lead sponsor of legislation to permanently extend reduced tax rates for beer, wine and liquor producers, said extenders are definitely on the lame-duck agenda. “It’s a package we’re working on, certainly,” Kind said in an interview. “Obviously, Chairman Neal is very focused on this as well, and it’s one of those must-do items when we get back.”
Grassley will have some help in his chamber. The lead sponsor of the Senate bill to permanently extend the beer, wine and liquor breaks is Finance ranking member Ron Wyden, D-Ore., one of the provisions’ original creators. Roy Blunt, R-Mo., a member of the Senate GOP leadership, is Wyden’s lead co-sponsor.
Senate Majority Leader Mitch McConnell received the Kentucky Distillers’ Association’s “100 Proof Award” for his work extending the break for bourbon and other spirits producers last year.
Senate Minority Leader Charles E. Schumer, a co-sponsor of the Wyden-Blunt bill, told a local news outlet in Auburn, New York, last year that he wanted to avoid a tax increase because area brewers “not only serve up great beer, they also pour jobs into our local communities.”
Horse racing, short sales
The 33 tax provisions expiring this year are a diverse group. Some of the breaks are supposed to encourage certain behavior, like investing in clean energy. Others favor particular industries, including horse and auto racing. Some are for individuals, such as those who engage in short sales of their overly mortgaged homes or those who have high medical expenses.
They are routinely criticized as special-interest handouts, which contributes to delays in getting the provisions extended. But COVID-19 may change all that. “I think that’s the interesting part that might make it a little different” this year, Heritage’s Michel said.
“That’s obviously the elephant in the room,” WineAmerica lobbyist Michael Kaiser said of the pandemic’s effects on tax extenders. “The lack of tourism has hurt us and now the fires on the West Coast; the last thing that everybody needs is a tax increase.”
When he introduced his bill in early 2019, Kind said that in his district alone, craft brewers provide 8,000 jobs and contribute $1 billion to the state economy. Similar stories like that across the country make them a good public face for this year’s tax extenders debate, he said.
“They’re unbelievable, and they’re family-owned and they’re local employment,” Kind said. Besides creating local jobs, “they bring great joy and happiness to people’s lives,” he added with a laugh. “So we like ’em and we don’t want to see those excise taxes snap back in January.”
Kind acknowledged that if Democrats win back the White House next month, it might push decisions on tax issues, among other outstanding legislative business, into 2021. “If you do get a change in administration, things do slow down in a lame duck,” he said.
Jessica Wehrman contributed to this report.