After the repeal of Prohibition, state governments were granted explicit authority to regulate alcohol sales and distribution within their own borders through Section 2 of the 21st Amendment. Today alcohol products (beer, wine, and spirits) are some of the most heavily regulated and taxed consumer products in the United States. According to a 2014 study by the Mercatus Center, brewing entrepreneurs must hurdle more than a dozen regulatory barriers on average before a new facility can open. Those regulatory steps take on average 100 days and cost in the thousands of dollars for a single license.
Policymakers should lower regulatory burdens on brewers, as on all businesses. Market competition will reward the brewers who create and market a product consumers want to buy.
The tax rates applied to beer, wine, and spirits vary greatly from state to state but are often applied based on liquid volume. Alcohol taxes distort the market, are highly regressive, and unsustainably prop-up government spending.
High alcohol taxes have caused consumers in some states to buy cheaper products across state lines or on the black market. Since alcohol taxes are primarily paid by lower- and middle-income earners, they are highly regressive in nature. Alcohol taxes do little to fix the long-term budget problems of a state and often make those long-term problems worse by diverting attention away from necessary spending reforms and spending cuts.
According to the National Alcohol Beverage Control Association, “Seventeen states and jurisdictions in Alaska, Maryland, Minnesota and South Dakota adopted forms of the ‘Control’ model. They control the sale of distilled spirits and, in some cases, wine through government agencies at the wholesale level. Thirteen of those jurisdictions also exercise control over retail sales for off-premises consumption; either through government-operated package stores or designated agents.”
States that regulate but still allow private liquor stores and distributors to operate can more accurately predict and set market prices for the delivery and sale of these products. Proponents of privatization argue it is not the proper role of government to run a state’s liquor stores.
A three-tier distribution system is where suppliers, wholesalers, and retailers must remain separate. These laws grant the distributors exclusive territories and wholesalers brand exclusivity while limiting interaction between the groups. This three-tier system was designed to prevent large breweries from controlling beer production, distribution, and retail sales. Some states even limit how much product the brewers are allowed to produce, severely restricting their ability to grow.
According to the Boston Globe, several states have begun efforts to help smaller craft brewers overcome the burden of regulation. In Arizona and Wyoming, legislators have increased their caps on production for microbreweries. Illinois and California have expanded the ability of brewers to sell their product: California will allow sales at farmers’ markets, and Illinois gave brewers more options for selling directly to consumers. Texas breweries can now sell on site, and Florida brewers can refill the 64 ounce containers known as growlers.