Beer and Taxes - a look back
By
Jim Attacap


Taxes have been imposed on citizens by governments for centuries, and breweries and their beers have long
been a favorite tap for government revenue.

Egypt was the first civilization on record to tax beer. As European societies learned to make beer, the taxman
dutifully followed. In the French city of Aix-la-Chapelle, the city council of 1271 mandated cutting off the right hand
of brewers who failed to pay their beer taxes; taverns that didn’t pay were torn down. Beer historian Gregg Smith
writes that in Hamburg in the late 16th century, there were over 1500 brewers; by 1698, due principally to high
taxes, only 120 remained.

In London in the 1690s, gin was cheaper than beer because of lower taxes, which led to the social problems of
excessive gin consumption depicted so vividly in Hogarth’s prints. The British government responded to the
protests of reformers by raising the taxes on spirits, and beer soon regained its popularity among the drinking
public.

In 1764, the first customs duty on beer and wine was imposed by the British on the American colonies. Following
American independence, however, no taxes were levied on beer–a wise choice, since public outrage concerning
unfair taxes helped fuel the American Revolution. But the tax-free status of beer was changed by none other than
Abraham Lincoln, who issued a $1 per barrel tax on beer on July 1, 1862 to help pay for the Civil War (he also
started the federal income tax). By 1919, the beer barrel tax had increased to just $6, and was only $9 in 1990,
before being doubled the following year (it was later reduced to $7 per barrel for brewers making 2 million barrels
or less).

Throughout history, businessmen have sought to avoid taxes, by legal means or otherwise. Savvy brewers have
also found ways to reduce or dodge taxes–ways that have often changed the beers they made, sometimes in
dramatic fashion. In fact, many of the beers we enjoy today were shaped by taxes as much as by taste or
technology.

Pale ale or bitter, for instance, developed not just as a result of technology, but also because of taxes on its
ingredients. The fabrication of coke from coal in 18th century Britain allowed maltsters to develop a high-heat
dried pale malt that had no off-flavors as were common from wood-fired kilns. Taxes on coal, however, made
production of this malt more expensive than the brown malt used for porters and stouts. As a result, the lighter
colored "pale" ale that was produced from it was more expensive to make, and thus higher in price.

Since the resulting beers were more consistent and probably more reliably free of smoky or phenolic off-odors as
well, pale ales were ideally suited for the export market–especially in their stronger and hoppier version as India
pale ale.

Cheaper porter became a workingman’s brew. Perhaps the increased hoppiness of pale ales was a direct result
of higher taxes on their production as well, since they were usually bottled for export, and needed more hops as a
preservative.

When the export market for British ales shrank due to the Napoleonic Wars and restrictions on trade from high
Russian  tariffs, coal taxes were dropped, and the home market for pale ales expanded, while their alcohol
strength was gradually reduced.

Taxes–or the avoidance of them–also helped create Irish-style stout. In his book, Classic Stout and Porter, Roger
Protz notes that Arthur Guinness II developed his famous recipe by using non-taxed unmalted roasted barley in
the place of black malt in his porters to reduce their cost. The bitterness of the roasted barley set his brews apart
from those of his competitors in England and Scotland. It was instrumental in making Guinness Foreign Extra
Porter Stout, a stronger version that became popular in the colonies. Guinness Double Stout came to dominate
the London market. Here again taxes were a factor.

Taxes on individual beer ingredients continue to engender new beer styles today. In Japan in recent years, the
beverage category called happoshu has encompassed a wide range of drinks that have little in common except
their lower tax status.

Happoshu generally refers to a new style of light beer that has been created to avoid taxes on malt. Made with as
much as 75 percent corn or rice adjuncts, the resulting brew is just as strong as typical Japanese lagers, yet
costs much less. While that fact alone has made happoshu attractive to consumers, many complain about its
lack of flavor.

However, the happoshu category–and its tax advantages–also includes brews made with ingredients not
approved for use in beer. This means that Japanese craft brewers who want to experiment with fruit, spices or
different grains may enjoy a lower tax rate. That also motivates some brewers to add ingredients they wouldn’t
otherwise–sweet potatoes or bitter melon, for example–purely to qualify for lower tarrifs. Either way, the result is
new flavor combinations for the consumer, made possible by the tax structure.
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Beer and Taxes