Corporate welfare is something both parties, and the American people, dislike. It occurs when special interests use the power of government to either punish competitors or funnel government money to their own pockets. Right now, large spirit importers and exporters of whiskey and bourbon are gaming the tax code to benefit themselves.
Any whiskey connoisseur is going to tell you that a bourbon is different from an Irish whisky - they aren’t made the same way, are not distilled from the same material, and have a different aging process to produce a unique taste to the palate for each spirit. Accordingly, they are assigned different codes under the current tariff and excise tax system which regulates how the government assigns proper taxation.
However, in the deep recess of the complexities of the U.S. tax code, there are provisions regarding the excise taxes collected on the import of liquor - which are then refunded to the producer upon the export of similar products. And while that may sound simple, in reality it is a bit more complex depending on how one qualifies a similar product. The special interests are trying to “harmonize” the two products in a way that will define bourbon and Irish Whiskey as essentially the same product.
As one might expect, multinational conglomerates of branded liquor are attempting to “harmonize” these across different categories of whisky liquor, allowing them to reap additional benefits importing foreign products in and exporting products from the United States out to Europe and other markets. And while this might seem like an instance of esoteric tax and trade law which has little effect on the consumer, it presents an opportunity for those large international players with a large multiple portfolios across different liquors to put the smaller producer, which does not have the volume to offset, at a significant economic disadvantage. Which boils down to less selection at the store, should the economic squeeze be too much for smaller producers to continue to bear.
In a perfect world, nobody would have to pay anything for imports and exports of these spirits, yet the special interests have found a way to get all their taxes, fees and duties sent right back to them while the smaller importers and exporters who don’t deal in this narrow area of business don’t get the benefit of being exempted from paying taxes, duties and fees.
Currently, two pieces of legislation would “simplify” the codification of those products and allow those larger importers to reduce their tax burden. H.R. 4073, introduced by Rep. Morgan McGarvey (D-KY) and S. 1781, introduced Senator Bill Cassidy (R-LA) would effectively apply uniform taxation rates for all whiskeys under the facade of tax simplification and fairness. However, the practical reality is that only those larger producers would benefit and pocket a significant tax break detrimental to the taxpayer, reducing competitiveness with smaller producers undercut in the process, and entrenching cronyism in the tax code.
And while the industry continues to lobby for the inclusion of these provisions in a larger end of the year tax package, Congress should collectively recognize the false sheen of the supportive talking points and resist the temptation to satisfy these parochial interests. Either abolish all the fees or reject this special interest provision.
The Duty Drawback Clarification isn’t really a clarification of a tax code but an obfuscation - hiding significantly different products under a similar code to hide the true volume of each particular product and to capitalize on a system which prioritizes large players who can afford to play games.
Cronyism is one big reason why the American people feel alienated from Washington. While Americans pay much higher prices for groceries every week and watch wild swings in the prices of gas, Congress seems to focus on helping special interest friends. Instead of taking a hard look at how all these duties, fees and taxes inhibit trade and slow the American economy, Congress wants to take the easy way out by sending out big checks to large importers and exporters to make a slice of the industry happy.
This legislation cuts against most people’s notion of fairness and must be excluded from any end of the year package.
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