Tuesday, May 25, 2021

A Tale of Two Troublemakers: Alcohol and Firearms

 

Although the Federal Excise Tax (FET) on distilled spirits was lowered recently for small producers, it remains $13.50 per proof gallon* for most beverage spirits sold in the United States, a rate that was set in 1985. Raising taxes on beverage alcohol products even higher has been part of some health care plans presented to Congress. Sixteen dollars per proof gallon has been widely proposed. Increasingly, health care costs related to alcohol consumption are cited as justification for higher beverage alcohol taxes at all levels of government, and beverage alcohol (beer, wine and spirits) is taxed at all levels of government.

It may surprise you to learn that a federal excise tax of 10-11 percent on the import and production of guns and ammunition has been in effect, at the same rate, since 1919. The National Firearms Act of 1934 (NFA) imposed a $200 tax on manufacturers for the transfer of a very narrow set of weapons and that too has not changed since its enactment.**

The argument in favor of these punitive taxes is simple and superficially attractive. The use of tobacco and alcohol, the usual suspects, is unhealthy and increases healthcare costs. Gasoline is taxed the same way for similar reasons, related to the cost of motor vehicle infrastructure and, increasingly, to reduce climate change harms. Higher taxes on products deemed inherently unhealthy or harmful are justified to help pay for the healthcare and other expenses caused by those products and borne directly by government programs such as Medicare and Medicaid, and infrastructure grants. In this way, tobacco, alcohol, and gasoline users pay for the consequences of that use, whether through healthcare, pollution abatement, or highway maintenance. 

The money raised by the firearms FET funds wildlife conservation and hunter education programs. 

If you buy a bottle of whiskey for $25, a nice bottle of Wild Turkey 101 perhaps, you have just made an FET payment of about $7.50, plus another few bucks for state and local taxes, all of which are much higher for Wild Turkey bourbon than they are for, well, actual turkey.

Rarely considered for similar higher taxation due to harms caused are firearms, ammunition and related products.  

Before you unholster your best 2nd Amendment rant, consider this a thought exercise in how policy toward these two different product categories is approached. Considering how often alcohol and gun violence go together, the exercise would seem to have some validity.

In addition to funding care for the harm they cause, higher taxes on disfavored products cause prices to go up, thus discouraging consumption and reducing the harm and associated healthcare costs. According to RAND, "a wide body of research has found that taxation can serve as an effective policy lever for reducing consumption and consumption-related harms." Studies show price increases prompted by higher taxes may or may not affect consumption depending on many factors, but even when they don't, money is raised to fund mitigation. Either way, it seems like a logical bit of social engineering so far. 

If it makes sense to engineer society in this way with regard to alcohol, tobacco, and gasoline, why not include other harmful products?

There are many possible candidates in the category of foods and beverages, especially products that are high in saturated fat, sugar, or salt that have minimal nutritional value, such as ice cream, candy, potato chips, and soft drinks. The harm they cause is comparable to that caused by alcohol and tobacco.

The same logic suggests fattening foods, guns, and ammunition should be taxed the same way alcohol and tobacco are, but just as alcohol, tobacco, and gasoline are taxed at all levels of government, food production is often subsidized, and taxes on firearms and ammunition are rare. 

They are also disfavored. In 2016, a U.S. territory passed a $1,000 tax on all pistol sales but it was struck down by a federal court as imposing "an undue burden on individuals' ability to exercise their constitutional rights."

One advantage of an excise tax increase is that it would be levied on manufacturers and thereby become part of the price each time the weapon changes hands, even extra-legally. Since handgun sales impact both law enforcement and healthcare costs, the argument for recovering some of that cost through taxation is very strong, even if the higher prices don't directly impact gun violence by reducing consumption. The Second Amendment is not impacted unless the tax is so high it unreasonably limits the ability of people to lawfully bear arms. No one has construed the Second Amendment as saying the right to bear arms has to be free or cheap.

Using the Federal Excise Tax on Distilled Spirits as an example, a proportional excise tax on firearms and ammunition would raise the price by about 30 percent. Since no one is harmed by mere ownership of a gun, perhaps it makes more sense to only tax ammunition this way. That would be more parallel to alcohol, tobacco, and gasoline taxes.

At present, regulations for ammunition sales are less stringent than those for firearms. No license is required for sellers and no background checks are required for buyers. In a survey at Cook County Jail (Chicago), inmates arrested for gun offenses said ammunition was easier to get than guns, yet reducing gun violence by tightening up and taxing ammunition sales has never been tried. 

If high taxes are okay on Bulleit Bourbon but not on actual bullets, why not?

If nothing else, this thought exercise should persuade you that all taxation is essentially arbitrary and like everything else in our society, it is a function of power and privilege merely obtained and held and not, in any sense, earned or justified.

_________________

* A 'proof gallon' is one gallon of beverage alcohol that is half alcohol and half water, i.e., 100° proof, or 50 percent alcohol-by-volume (50% ABV).


Saturday, May 22, 2021

The Lost History of a 30s Supermodel (From My Hometown)

 WARNING: No Bourbon Content.

Dana Jenney, photo by Lusha Nelson, Vogue 1937

Dana Jenney Horvath (1914-1992) grew up in Shenandoah, Ohio, a tiny town 12 miles north of Mansfield (my hometown), where her parents ran a general store. I've driven past it thousands of times on OH-13. The store's sign is how you know you are in Shenandoah. 

She went on to become one of the most successful models of the 1930s and early 40s, appearing on covers of every major fashion magazine. She was one of the first supermodels, yet she is little remembered today. 

Dana Jenney then, she attended and graduated from Mansfield Senior High School rather than Union High, a much smaller school closer to Shenandoah. While still in high school she met Charles King, who ran the Ohio Brass Company and whose elegant mansion was a short walk from the school. King's nephew was one of Jenney's classmates and she often swam at the mansion's pool.

King was new money. He entertained often, liberally, and sometimes scandalously. The main business of The Brass (as we always called the company) was selling insulators, conductors, resisters and other components to streetcar lines. In the 20s, new streetcar lines were being built all over the U.S. and King's business was booming.

Jenney graduated from Senior High in 1931 and immediately eloped to Kentucky with her high school sweetheart, the son of another wealthy Mansfield family. Even in my day, growing up in Mansfield almost 40 years later, it was still popular knowledge that if you wanted to get married before age 18, you ran away to Kentucky or West Virginia.

When the young couple returned to Mansfield, both families insisted on having the marriage annulled. King then helped Jenney launch her modeling career, first in Cleveland, then New York. They remained friends until his death in 1952. Whenever she visited her family in Shenandoah, King put his car and driver at her disposal. 

In New York, her social circle included Vanderbilts, Rockefellers, and Whitneys. She was one of the first American models to work extensively in Europe. In the early 1940s, Jenney married a wealthy industrialist named George Anton 'Tony' Horvath. They owned two homes in New York, and also in Miami, London and on the French Riviera. Each had their own yacht. 

They had one child, a daughter. Tony died in 1990. Jenney and her daughter moved to Arizona, where she died two years later, age 77. She is buried beside her parents in Shenandoah. 

Charles King is still remembered in Mansfield today because, childless, he left his mansion and its beautifully landscaped grounds to a generously endowed foundation. Today known as Kingwood Center, it figured prominently in my young life and that of many other Mansfielders. The swimming pool where Dana Jenney likely launched her glamorous life was filled in years ago.   


Tuesday, May 18, 2021

Bourbon History Echoes in Today's Craft Distilleries

 

Stamping Ground is a small town in Kentucky's Scott County, about 25 miles northwest of Lexington. It was named by its first settlers who saw herds of bison trampling the grass around a fruitful spring. Not long after the buffalo departed, the spring was turned to production of whiskey. There was a distillery on the site for about 100 years.

The last one, known as Buffalo Springs Distillery, was founded early in the 20th century. It produced several bourbon brands including Boots and Saddle. The plant was substantially rebuilt after Prohibition and Otis Beam, one of the seven sons of Joseph L. Beam, was distiller. Eventually purchased by Seagram’s, which owned 14 Kentucky distilleries at one time, Buffalo Springs ceased production for good in the 1960s and stood vacant for many years thereafter.

The spring at Buffalo Springs Park today.
The buildings, some made of locally quarried limestone, are gone but the spring still flows. The former distillery site is now Buffalo Springs Park. Another remnant of the distillery is a concrete and rock structure with several large, concrete circles. On September 12, 1935, the distillery held a burgoo party for the town and the circles provided a firm base for the large pots of burgoo. (Burgoo is a traditional Kentucky stew. A recipe is here.)

Buffalo Springs was typical of the many small town distilleries that once abounded in the region. It operated seasonally, from late fall until early spring, and employed as hands local farmers who might otherwise be idle for the period between harvest and planting. As one of the few sources of non-farm employment, it dominated the local economy and was a powerful part of the town’s consciousness.

Modern craft distilleries are playing a similar role in many parts of the country today. Not by employing farmers necessarily, but by providing jobs and tax revenue and complementing existing agricultural, tourism, and hospitality businesses. 

Thursday, May 13, 2021

Did This Government Pamphlet Launch the Craft Distilling Movement?



In 1982, the U.S. Departments of Agriculture and Energy teamed up to publish Fuel from Farms, a Guide to Small Scale Ethanol Production. This 168-page document encouraged farmers to set up small distilleries to produce ethanol from their grain or other agricultural products. By converting their tractors and other farm equipment to run on ethanol, they could become energy self-sufficient. (That was just one of the benefits.)

In addition to publishing this helpful tome, the government streamlined licensing and regulation. It also made a stern effort to exclude beverage alcohol from the equation. 

Although the fuel part never took off, the simplified applications and lower fees were extended to beverage alcohol licenses, triggering a revolution.

Got some spare room in the barn?
Why not start a distillery?
There were other factors too, of course, and craft distilling did not catch fire overnight. But from a handful the movement has grown to more than 2,000 distilleries, all over the U.S., and is adding about 200 new producers each year.

In the new issue of The Bourbon Country Reader, we deep dive into the roots of this dynamic movement. In this issue, in Part 1 of this two-parter (or maybe three), we explore the movement from its humble beginnings up to today. Next time we'll survey the contemporary craft distilling landscape. 

It's all in the new issue of The Bourbon Country Reader. Current Reader subscribers should receive their copies in a few days. New subscribers can get on the bandwagon by clicking here.

The Bourbon Country Reader is the oldest publication devoted entirely to American whiskey. It is a charming mix of news, history, analysis, and product reviews. Do you worry that advertising spending influences coverage in other publications? No chance of that here since The Bourbon Country Reader is 100 percent reader-supported. It accepts no advertising.

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Thursday, May 6, 2021

What Company Makes the Most Money from Bourbon? The Answer Might Surprise You (But Probably Won't)



We are about 20 years into the 'bourbon boom' and craft distilling renaissance. Much has been said in that time about all the new brands and new producers who, according to some, are bound to replace the tired, old legacies. How is that going? Who holds the largest dollar share of the bourbon category today? 

According to Wine and Spirits Daily, nearly one-third of all the money spent on bourbon, rye and other American-made straight whiskey products is spent on this company's brands.

It is Brown-Forman. B-F holds the largest dollar share of the bourbon category at 28%.

Brown-Forman's lead dog, of course, is Jack Daniel's. Woodford Reserve and Old Forester also contribute. The other big contributor to the company's bottom line is Herradura Tequila. 

And Brown-Forman is about as legacy as legacy gets, founded in 1870 to sell bourbon, it is publicly owned but still controlled by its founding family. 

How do they do it? I worked for a Brown-Forman marketing agency in the early-to-mid 80s. If they couldn't get a brand to at least #2 in its segment (sometimes narrowly defined), they sold or killed it. They also had very high return-on-investment requirements. They made an exception for Old Forester because it was the company flagship, but otherwise they were ruthless. 

That was a long time ago but speaking as a close observer of the industry, I don't think their philosophy has changed much. 

I would love to tell you how the other 72 percent of the bourbon category breaks down but I'm not willing to spend $545 to get past the Wine & Spirit's paywall and I'm not sure they know precisely anyway, because two of the biggest producers, Heaven Hill and Sazerac, are private companies that don't report results.

But based on what we peasants can see, the Bourbon Big Four (Beam Suntory is the other one) all seem to have so far weathered the craft distilling threat pretty successfully.