In the wake of Tuesday’s election, beer industry trade groups are diving into the changes that could be coming and the potential impact on their members, with shifts across the U.S. Senate, House of Representatives and White House.
Republican candidate Donald Trump has been elected president, with 295 electoral votes as of press time. In the Senate, Republicans have taken the majority from Democrats, with the latter losing four seats as of press time, according to the Associated Press (AP). And the House majority is still in question, with 25 seats yet to be called. As of press time, Republicans have 211 seats and Democrats have 199, with 218 needed to have a majority.
Here are some of the watchouts according to the Brewers Association (BA) and Beer Institute (BI):
Taxes
2025 will be “a big year for taxes,” BA senior director of federal affairs Katie Marisic wrote in a blog post for the trade group. The Tax Cut and Jobs Act, passed by then-President Trump in 2017, includes several provisions that will expire in 2025 or have already lapsed.
Included in those expiring provisions is Section 199A, which gives small business owners the option to deduct “up to 20% of their qualified business income (QBI) from pass-through entities, such as sole proprietorships, partnerships and S corporations,” according to Marisic.
“More than 70% of breweries are organized as pass through,” Marisic wrote. “If they are utilizing it, losing this tax provision could impact them significantly.”
“Trump sees the starting point of his convocation as the Trump tax cuts, the Tax Cuts and Jobs Act, and that’s his starting point, is a full redo of the cuts themselves,” Bully Pulpit International partner Scott Mulhauser said during a panel discussion Tuesday at the BI Annual Meeting in New York City.
Mulhauser, who consults for Anheuser-Busch InBev (A-B) and is the former senior advisor for U.S. secretary of commerce Gina Raimondo, was joined by BI president and CEO Brian Crawford and Fierce Government Relations managing partner Kirk Blalock, who consults for Molson Coors and previously served as a special assistant to the White House Public Liaison Office during George W. Bush’s presidency. The panel discussion, focused on the potential impacts of the election results on the bev-alc industry, was held before the results were tabulated.
Also up for contention is the allowance of “full depreciation of research and development (R&D) investments in the year that they occur,” according to Marisic. The bipartisan allowance is included in the Tax Relief for American Families and Workers Act of 2024, which was passed by the House in January, but failed to pass through the Senate in August.
Tariffs
Trump will lead with a “tariff first policy,” according to Mulhauser, reminding attendees at Tuesday’s conference that Trump referred to tariffs last month as “the most beautiful word in the dictionary.”
In his previous presidential term, Trump passed a 10% aluminum tariff, which the BI has vehemently opposed, claiming it has significantly raised the price of aluminum “regardless of whether the metal was meant to be tariffed” or not, and allegedly placing the majority of costs on U.S. suppliers.
“Trump obviously is coming in more eyes wide open that he wants to do more and that he thinks that’s a great stick to get other countries to move,” Blalock said.
Additionally, “some of the architects” behind the aluminum tariff are expected to be back at the decision-making table with Trump’s election win, according to Blalock, who recalled being in a meeting when one of those architects called former Molson Coors chairman Pete Coors “un-American, because he didn’t believe in tariffs.”
Mulhauser and Blalock agreed that there appears to be a disconnect between who tariffs are meant to impact, and the actual effect it has on related industries.
In a May report, Bernstein analysts Trevor Stirling and Nadine Sarwat explored the impact of a 10% tariff on bev-alc, and found that impacted breweries would need a +4.5% price increase to offset the impact on cash gross margin (assuming a gross margin of 55%), “with a correspondingly reduced hit to volumes.”
“In the longer term, the ability to pass on these tariffs to the customers will vary, depending on the availability of substitutable products and the strength of the brand equities of the products subject to tariffs,” the analysts wrote.
“I don’t think, however, that you’ll see tariffs put through legislatively in a reconciliation package – that is very difficult to do,” Blalock said. “I don’t think members want to own something that they know Trump can do by himself with the power that he has just on the ability to levy tariffs. Why would you vote for that and have that in the record?
“We all know that it’ll increase prices on consumers,” he continued. “Why they don’t know that? I don’t know, but that’s their belief. Nonetheless, that’s probably one of the more dangerous aspects of a Trump 2.0 from a policy perspective, and one that we should be concerned about.”
Government Funding
The deadline to pass the FY 2024 budget is December 20, and “there is a possibility that there will be another continuing resolution moving it to 2025,” according to Marisic.
“Going forward, if Republicans control all branches of the government, there may be funding cuts to agencies across the board,” Marisic wrote. “The Alcohol and Tobacco Tax and Trade Bureau, which oversees the industry, the USDA Agricultural Research Service, and others could see budget reductions that could impact everything from working on the executive report on competition to label and formula approval times.”
In an interview with MSNBC Wednesday, former presidential candidate Robert F. Kennedy Jr., who is expected to have a role in Trump’s administration, said he is prepared to make cuts to “entire departments,” including “the nutrition department at the FDA,” and other similar organizations.
Cannabis
The 2018 Farm Bill, which excludes hemp from the definition of marijuana, has expired, and how it will be extended is up in the air.
The “most likely outcome” is a short-term extension, and the chance of a lame duck extension before an exchange of power is unlikely, at around a 20% chance, Mulhauser said, citing comments from existing House leadership. Mulhauser added that legislators are more preoccupied with measures to address conflict in Ukraine and Israel, and “there’s a lot to do with a short amount of time.”
When it comes to federal legalization of cannabis, Blalock said there has likely not been enough change in government perception to pass anything yet.
“Whether or not you have enough members in Congress yet, generationally, who are willing to go down this road, is the open question,” Blalock said. However, he acknowledged that “some of the challenges that have been there in the past” are no longer there.
“Mitch McConnell does not want to see this go as Majority Leader – he had the ability to really hold that back,” Blalock said. “That will no longer be the case. As these dynamics change in Congress, and you get new leadership, then there’ll be more open minds about certain things.”
Small Brewers Caucus
The Senate bipartisan Small Brewers Caucus has lost a total of six members due to both retirements and losses during Tuesday’s election. Included in those loses was a party flip in Pennsylvania, with caucus member Bob Casey (D) losing in a tight race to Dave McCormick (R), who took the race with a 49% to 48.5% lead with 95% of the votes reported as of press time. The race has been called by AP, but Casey has not conceded.
The House Small Brewers Caucus will lose 27 members due to retirement, race losses and death, according to Marisic. Included in those 27 members is caucus co-chair Rep. Patrick McHenry (R-NC), who is retiring at the end of the term. Co-chair Rep. Marilyn Strickland (D-WA) will hold her position, winning her race with 59.8% of the votes with 86% reported, according to the AP.
The BA is also monitoring the results of Washington’s fourth district, with Rep. Dan Newhouse leading with 52% of the 74% of votes reported so far, but no winner has been announced yet. Newhouse, who is running against fellow Republican Jerrod Sessler, is a co-sponsor of the USPS Shipping Equity Act that would permit the U.S. Postal Service to deliver bev-alc direct-to-consumers.