Looks like those clowns in Congress did it aga— wait, what? A new bill, you say? Bipartisan support? More kegs… more jobs… more sustainability?
How do they keep up with the news like that?!
On Monday, a pair of congressmen introduced the Creating Hospitality Economic Enhancement for Restaurants and Servers Act — the CHEERS Act, if you will. (You don’t have to, it’s not a law yet.) At just two and a half generously spaced pages, H.R. 7577 is a lightweight piece of legislation. But the potential boon it represents for the hospitality industry, and the brewers and wholesalers that keep restaurants and bars across the country stocked with keg beer, is hefty indeed.
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“This bipartisan bill will support these local establishments by incentivizing the expansion of tap lines and keg equipment on commercial premises,” said Rep. Darin LaHood (R-IL) in a statement. From across the aisle, his cosponsor, Steven Horsford (D-NV), offered his own statement, promising the CHEERS Act would enable hospitality businesses to “invest more in their employees [and] reduce waste created by using smaller, disposable containers.”
As far as statements go, those are pretty light on detail. (Rep. LaHood’s office didn’t respond to my request for more details; Rep. Horsford’s office just sent more boilerplate.) So are the gaggle of others that the Beer Institute, the brewing industry’s biggest trade group, helpfully aggregated in its own release heralding H.R.7577’s introduction. By my count, 10 trade groups in or adjacent to the American beer business are all a-thrill with the bill, as well as the proprietors of two restaurant chains in Ohio and New York. It’s a who’s who of people who make money selling beer on tap — or did, before that channel started sliding about a decade ago — and everybody’s pumped.
Still, as the old newsroom saw goes, “beer industry loves tax breaks on kegs” is not news. So your humble Hop Take columnist, no wonk himself, gave the CHEERS Act a thorough read-through. Here’s what you need to know:
- It proposes to amend the Internal Revenue Code of 1986, which, among many other things, established tax definitions for beer that still mostly stand today. (You may have heard certain hard seltzers referred to as “IRC beer;” this code is what that acronym stands for.)
- Specifically, it aims to tuck “energy efficient kegs” into the code’s definition of “commercial building property.”
- This would allow bars and restaurants to claim a tax deduction under Section 179D, a chunk of the IRC that took effect in 2006 and aims to coax owners of commercial buildings to upgrade the sustainability of their properties by offering opportunities for accelerated depreciation.
On paper, this all seems pretty straightforward. Draft beer is far more sustainable than packaged beer by virtue of you don’t throw kegs or pint glasses away. Installing draft systems, or upgrading old ones with more efficient ones, is one way to reduce the deluge of empty bottles and cans from the country’s bars and restaurants. But draft systems can easily run into the tens of thousands of dollars in upfront costs, or more if we’re talking refrigeration. (NB: Neither cosponsor responded to a question about whether kegerators would be eligible for deductions, and the BI’s director of public affairs, Alex Davidson, wasn’t sure. “We would expect that Congress would make that intent clear through the committee process, just like any other piece of legislation,” he tells Hop Take.) Businesses that could tap (all right, I’ll stop) those future cost, energy, and waste savings might forgo the project.
Just like that, we’ve brewed ourselves a little market failure, folks! With respect to the Coors Light contingent, there’s no silver-bullet solution, either. Nobody is making meaningful progress these days properly pricing carbon emissions into aluminum or glass, or anything else for that matter. And despite the recent sales slide in the on-premise, people still drink lots o’ beer in the on-premise, especially if you include brewery taprooms, which Davidson says the CHEERS Act would. In lieu of a stick wielded by the Invisible Hand (e.g., a carbon tax) or Uncle Sam (e.g., a ban on specific packaging materials) (lol), the CHEERS Act offers a small carrot to nudge the market toward a partial solution instead.
“Many operators in the U.S. have been hesitant to invest in these systems since the pandemic,” says Daniel Kopman, a professorial lecturer at American University’s Kogod School of Business, in an email exchange this week. He knows of what he speaks: before his turn in academia, he had a couple in the craft brewing industry, co-founding Schlafly Beer in St. Louis, then serving as the chief executive of Baltimore’s Heavy Seas Beer. He’s also a current policy advisor to the World Brewing Alliance, a former board member at both the BA and the BI, and has worked extensively on the Craft Beverage Modernization and Tax Reform Act.
With his “bias for beer” (his words), it’s perhaps no surprise that Kopman thinks the CHEERS Act would be an effective fiscal tweak to help the American hospitality sector. “I believe this is part of an important effort to support the long-term sustainability of pubs, restaurants, and taprooms in the U.S.,” he says, pointing to a draft beer-related tax cut in the United Kingdom that took effect in August 2023 as evidence of emerging consensus about draft’s vitality to the on-premise.
(This move, enacted by the country’s Conservative Party as a Brexit balm, was criticized from the left, as well as the wine and spirits industries, as little more than political window-dressing. In force for just over half a year, its efficacy is not yet clear. U.K. on-premise beer sales were down 7 percent year-over-year, according to CGA data reported by the Guardian in January 2024.)
Further from the beer industry, Owen M. Zidar, a professor of economics and public affairs at Princeton University, is more skeptical. “I don’t understand why draft beer would be getting this energy-efficient subsidy,” he says in a recent phone interview. “It basically just seems like a tax cut. … It’s not clear that we’re not doing enough investment in this area.”
I’m no Ivy League economist, but I get the sense Zidar is getting tripped up on the same things I am vis-à-vis the CHEERS Act. I can wrap my head around how tax breaks on draft systems (and keg deposits and losses, which would also be eligible for deductions under H.R.7577) could help to make restaurants and bars more environmentally sustainable, and even more financially sustainable, given the favorable margins. It’s obviously appealing to bar and restaurant operators, allowing them to unlock tax benefits on draft systems, capture energy savings, and promote their environmental-friendliness to rank-and-file drinkers. Sure, maybe, right?
The rub, from where I’m sitting, is that those drinkers have pretty thoroughly demonstrated a waning thirst for draft beer, and it’s not for lack of availability. As Hop Take reported last year, draft sales have been eroding since well before the pandemic began. Since 2014, to be exact — a period when craft beer, which over-indexes on draft, was very much in its heyday. A decade on, and the outlook is bleak. In his end-of-2023 webinar, the Brewers Association’s chief economist, Bart Watson, warned that draft sales could hit “their lowest level since World War II,” and that there was “zero reason to expect growth in 2024.”
Meanwhile, market research indicates drinkers don’t care about sustainability even when it’s advertised on beer packaging. Can you imagine energy-efficient draft systems bringing customers back to the on-premise with a renewed thirst for beer fresh from the tap? I just don’t see it, man. Tax deductions and compelling margins can’t recoup costs if no one’s buying. Businesses where drinkers are down would benefit from “a tax break for doing exactly what [we’re] built to do,” as Zach Mack, co-owner of New York City’s 12-tap Alphabet City Beer Company, puts it in a text exchange. “I don’t see how I can oppose!” But those spots would likely make these upgrades in the normal course of business anyway. That’s hardly efficient.
Still, the climate crisis of it all demands action across every sector of the economy, and beer is not exempt. And though I think the American drinking public deserves better third places than breweries, I’m not so naive to dream that publicly funded neighborhood bars are just over the legislative horizon. (Nor am I so naive to believe that cost savings from the CHEERS Act would magically accrue to staff wages, training, or hiring, as many of its boosters insist.) In the meantime, the legislation could pull the entirely privatized hospitality sector toward incremental sustainability gains. “I do like the idea that they’re incentivizing draft over bottles,” concedes Mack. “They should just be able to audit your ass if you don’t clean them.”
Kopman emphasizes that the CHEERS Act would be just one piece of the puzzle to reversing draft beer’s recent fortunes, which is itself part of the larger puzzle of how to restore the hospitality industry writ large. “There are economic, community, and sustainability benefits that come from a strong, on-premise sector in which draft beer is an important differentiator,” he says.
If the CHEERS Act actually makes it into law, I guess we’ll see that thesis tested in real time. I’m open to being wrong! After all, those clowns in Congress subsidize all sorts of unnecessary, cynical, and ghoulish private-sector horses*it with my tax dollars. An energy-efficient pint would be downright refreshing by comparison.
🤯 Hop-ocalypse Now
Less than a decade ago, Constellation Brands bought Ballast Point for $1 billion in a deal that would quickly come to be known as the most colossal f*ck-up overly optimistic gamble in the annals of craft brewing M&A. Is this important context for the news earlier this week that kinda-sorta craft beer-adjacent canned water brand Liquid Death raised another $67 million at an eye-popping valuation of $1.4 billion? Or is it totally irrelevant? I honestly don’t know! Anyway, Liquid Death Hop Water WHEN?!
📈 Ups…
The trade groups are fighting again, and this time the Distilled Spirits Council of the United States threw the first punch at “Big Beer’s Blather”… That goofy bill in Tennessee that would’ve banned cold beer to reduce drunk driving (???) has been thoroughly defanged… In Wyoming, the governor has signed a franchise reform law allowing termination without cause…
📉 …and downs
Teamsters brewery workers, still striking Molson Coors in Fort Worth, are amplifying their boycott call to drinkers… The Bureau of Labor’s latest Consumer Pricing Index showed “beer at home” up year-over-year for the third consecutive month, and outpacing total alcohol… The Brewers Association doesn’t like the look of a “very flawed bill” in Connecticut that’d allow for limited self-distribution of kegs…
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