Op-Ed: Wayne Sasser: Close the Foreign Liquor Loophole
By Wayne Sasser
As a former Republican state lawmaker, I am in favor of closing tax loopholes that benefit big corporations rather than ordinary working people. Even more so, we should eliminate tax loopholes that give an unfair advantage to foreign conglomerates over American businesses. That’s why I think it is about time we eliminate the Section 5010 tax carve-out—better known as the Foreign Liquor Loophole—and stop rewarding foreign alcohol producers for gaming the system.
Dating all the way back to the Civil War, the United States has taxed hard liquor at a fair and relatively modest rate. Right now, that rate comes out to $13.50 for every 100-proof gallon of alcohol in the bottle. A little more than 40 years ago, the law was changed to allow distillers who blend high-proof wine or other alcoholic “flavorings” to lower the taxes they pay substantially. The law allows for as much as half the alcohol in a bottle to come from these blended “flavoring” ingredients, while still labeling and selling the product as liquor.
Large multinational distillers have learned how to game the system using this loophole at the expense of American-based producers. Since wine and flavor content generally can’t be determined through lab testing, the Treasury Department’s alcohol regulator inspects U.S. manufacturing facilities on-site to verify compliance. But that same regulator has no authority to inspect distilleries located abroad, so foreign companies get to claim this substantial tax break with far less oversight than the American companies competing against them.
Making matters worse, none of this is required to be disclosed to consumers. When you pick up a bottle of liquor at the store, nothing on the label tells you that a significant share of what’s inside may not be distilled spirits at all. The program hasn’t even been reviewed by federal regulators since 1993, meaning nobody in Washington has taken a close look at how the loophole is being used in more than three decades. As a retired pharmacist, I know how seriously we take truth-in-labeling requirements for the products we put in our bodies. Consumers deserve that same basic transparency when it comes to what’s actually in their liquor.
Given President Trump’s staunchly America-First trade policies, it is hard to understand why we continue to allow foreign hard liquor producers to keep gaming the U.S. tax code. Many of the same multinational producers that benefit from the Foreign Liquor Loophole are lobbying hard for zero tariffs on the liquor they produce overseas and import into the U.S. market. We should not be giving these companies the massive tax breaks they currently enjoy, and we should certainly not be giving them free access to our markets on top of it.
As America looks for ways to slow the growth of our ballooning deficit, a great start would be to identify and plug unfair loopholes like this one. According to government projections, the Foreign Liquor Loophole will cost us almost $3 billion over the coming years. This is exactly the kind of government waste that the Trump Administration ran on ending. While addressing this problem won’t undo our fiscal problems, I believe unfair loopholes like this one are low-hanging fruit when it comes to solving the broader issue of our national debt.
Wayne Sasser is a former North Carolina state representative, retired pharmacist, and currently works as a farmer.
