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Why the End of 'Craft' Beer Is Just a Tax Break Away

Updated with clarification from the Beer Institute regarding its stance on the competing legislation and Deschutes Brewing and Matt Brewing's role in the process

PORTLAND, Ore. ( TheStreet) -- Garret Oliver has been brewmaster at The Brooklyn Brewery since 1994. He was the brewmaster at Manhattan Brewing before that and has served as editor-in-chief of The Oxford Companion to Beer, written two other books on beer and continues to make a series of brews that gets all the beer geeks excited.

At some point this year, a person who claims to love beer is going to say that Oliver isn't a craft brewer because of a stance his company took on excise taxes. If that happens in your presence, pull the beer out of that person's hand and pour it over his or her swollen head. They don't deserve it.

Earlier this week, Brooklyn Brewery joined Bend, Ore.-based Deschutes Brewing, Utica, N.Y.-based Saranac brewer Matt Brewing and Kalamazoo, Mich.-based Bell's Brewery in Washington, D.C., to ask Congress to support reducing the excise tax on the nation's brewers. While in town, those brewers offered varying levels of support for the Brewers Excise and Economic Relief Act of 2013 (BEER Act), would reduce the federal excise tax on beer for all brewers and beer importers. The act, introduced by U.S. Reps. Tom Latham (R-Iowa) and Ron Kind (D-Wis.) with 33 original co-sponsors, would help reduce the overhead on Brooklyn and the others and would, ideally, make it easier for new breweries to break into the business. That, in turn, might actually soften craft beer prices a bit for consumers.

The BEER Act is also supported by Anheuser-Busch InBev (BUD), MillerCoors (TAP - Get Report), Heineken USA, Constellation Brands' (STZ - Get Report) Corona distributor Crown Imports and Magic Hat and Pyramid brewer North American Breweries. Unfortunately, that makes it a bit of a sore point for craft beer lobbying group The Brewers Association, of which Brooklyn, Bell's, Matt and Deschutes are full members. That group has been working on its own legislation -- the Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act) with members of Congress including Sens. Ben Cardin (D-Md.) and Susan Collins (R-Maine).

Under the Small BREW Act, law that allows brewers making fewer than 2 million barrels of beer annually to pay $7 per barrel on the first 60,000 barrels they produce and $18 per barrel on every barrel thereafter would be amended. Instead, the smallest brewers and brewpubs would pay $3.50 on the first 60,000 barrels. Once brewers grow to between 60,001 and 2 million barrels, the rate would hit $16 per barrel. Any brewer that exceeds 2 million barrels (about 1% of the U.S. beer market) would begin paying the full $18 rate. Even the Washington-based lobbying group The Beer Institute, which is supporting the competing BEER Act, sees some common ground in the Small BREW Act.

"We believe that the beer industry is aligned in opposition to increased beer taxes," says Beer Institute spokesman Chris Thorne. "There are two different bills that attempt to achieve that through different means, but ultimately, we are united in our position against any increase in beer taxes."

Sounds great, right? The problem is that, under the Small BREW Act, breweries with an annual production of 6 million barrels or more don't get the reduced rate. That's why the big brewers' counteroffer, supported by Washington-based lobbying group The Beer Institute, is a bit more broad. Under their BEER Act, the smallest breweries making 15,000 barrels or less would pay no excise tax. That $3.50-per-barrel rate stays in place for brewers making 15,000 to 60,000 barrels. Brewers making more than that would pay $9 a barrel for every barrel from 60,000 to 2 million. The kicker is that big brewers and importers making more than 2 million barrels would see their tax trimmed from $18 a barrel to $9 for every barrel.

That latter legislation is making the Brewers Association surly for several reasons. For one, it gives every brewer a break, not just the ones the association recognizes as "craft." Secondly, it makes a mockery of that group's "craft vs. crafty" burn lists that keep out brewers such as D.G. Yuengling & Son that survived Prohibition and longtime craft brewers including Craft Brew Alliance (BREW - Get Report) members Widmer Brothers and Redhook, who signed a distribution deal with InBev. Third, and this is the most prickly part of the whole equation, it implies that Samuel Adams maker Boston Beer (SAM - Get Report) is definitely not craft beer, despite the Brewers Association changing its definition of a "craft brewer" just to accommodate it.
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