Friday, May 15, 2009

KDA Fights the Good Fight.

Columnist Tom Eblen, in the Lexington Herald-Leader (online here), did a good job yesterday of describing Kentucky’s fraught relationship with one of its signature industries, whiskey-making. His subject was Bill Samuels, president of Maker’s Mark, who spoke to the Bluegrass Hospitality Association in Lexington on Wednesday. In the course of unveiling a new look for the Kentucky Bourbon Trail (see my post, here), Samuels talked about whiskey’s economic contribution to Kentucky, its growth potential, and the commonwealth’s seemingly counterproductive beverage alcohol tax policies.

Knowing a few more facts makes the story even better.

Samuels was speaking on behalf of the Kentucky Distillers Association (KDA). Eric Gregory has been president of that 128-year-old organization for a little more than a year. He is a young leader who is shaking things up and showing his members (i.e., the distilleries) how to lobby and promote effectively. Gregory is also smart enough to pick a fight he believes he can win.

Bill Samuels and Maker’s Mark are now part of Beam Global Spirits and Wine. Counting Maker’s, Beam has three Kentucky distilleries in three different counties, plus a warehousing and bottling site in a fourth county. Even though Beam is based here, in Illinois, it has a lot at stake down there. Beam’s vice president for government relations and public affairs is Chris Swonger, another savvy young man who knows how the political game is played. The other companies have smart people working for them too. This isn’t just Bill Samuels shooting from the hip.

But Samuels is a good choice because he is always colorful, and if he goes too far it can easily be shrugged off. He can get away with attacking religious conservatives who see high sin taxes as deterrents. Even if that argument is not a winner, it makes the topic hot, which gets it more coverage.

To pour more 140-proof bourbon on the fire, Samuels pits Kentucky’s 30 most populous counties, where alcohol sales are permitted, against the other 90, where it is either banned or restricted. According to Eblen, “Samuels suggested legislation removing all local-option restrictions and forcing counties that want to ban alcohol sales to vote ‘dry’ again. And, he said, those that did should not get any alcohol tax revenues.”

That won’t happen, but it gets people talking, even though the argument is specious.

Does anyone suppose that people who live in dry counties don’t drink? Of course they do, and although some of them buy from bootleggers, most do not. They buy legally where it is legal to sell and they pay all the taxes. Even bootleggers and their customers pay taxes, since virtually all bootlegged liquor is bought legally at retail, with all taxes paid.

Dry means no sales, which means drinkers who live in those counties just pay their taxes someplace else. It is legal everywhere in Kentucky for anyone of legal age to possess and consume alcoholic beverages, that’s not the issue, and there are tax-paying alcohol consumers in every Kentucky county, so making this a wet v. dry fight is not really logical, but politics seldom is.

What matters here is that if the KDA shows legislators it can make their phones ring, it has leverage for its real agenda.

Which is, Kentucky will collect more taxes by encouraging us than it will by strangling us.

You can bet that what they are emphasizing behind closed doors is economic development.

It makes sense. Kentucky’s practical monopoly on bourbon production is a historical accident, but real nonetheless, and bourbon’s popularity is growing. Kentucky can capitalize on that, or not.

Kentucky’s whiskey-makers directly employ 3,200 people now. Could that number grow to 6,000 or 10,000, or even more in the future? Whiskey directly creates $3 billion in gross state product now. What if that could be $6 billion or $10 billion or more down the road? Or would you rather it be $2 billion, or $1 billion, or nothing?

Then there is bourbon tourism, which is why Samuels’ speech was made to representatives of the Kentucky tourism industry. Tourism is a big, fat tax pie too.

I haven’t seen them but I’m sure there are polls that show most Kentuckians, by a wide margin, believe their state should be behind all that and not trying to kill it, regardless of whether or not they, personally, drink. If the question is asked the right way, most Kentuckians will agree that encouraging whiskey-makers should be one of the state’s highest economic development priorities.

Every whiskey-maker in Kentucky is part of a diversified company that makes a lot more than bourbon. Some have more of their operations in Kentucky than others. This sort of campaign is exactly what the KDA exists to do. It is refreshing to finally see it doing it, and doing it so effectively.


sku said...

Great column Chuck. I have a couple of questions for you:

"Even bootleggers and their customers pay taxes, since virtually all bootlegged liquor is bought legally at retail, with all taxes paid."

How does this work? There are retailers selling bootleg whiskey? Are they selling it as counterfeits of legit bottles?

Chuck Cowdery said...

You may be confusing bootlegging with moonshining. Bootleggers could sell moonshine or counterfeits, but usually they don't. They make large volume purchases of legal products from cooperative retailers, so they generally don't pay full retail price, then they add a mark-up when they resell it. They provide a convenience for people who can't or don't want to drive into a wet jurisdiction themselves. Also, since what they are doing is illegal anyway, they sell to minors, set their own hours of operation, sell to people who are already intoxicated, etc.