Amid all the competing headlines of the 2024 election, there may be no more bread-and-butter issue—literally—than how much Americans are paying to put food on their tables. The GOP is gearing up to attack the Biden-Harris administration for escalating grocery store bills, while presumptive Democratic nominee Kamala Harris has now responded with her own plan to fight higher food prices. 

One of the hottest items in this political food fight is unquestionably the ongoing litigation from the Federal Trade Commission (FTC) attempting to block the Kroger-Albertsons grocery store merger. A host of Democratic lawmakers recently joined the legal fight, arguing that any potential merger would raise prices, increase food deserts, and disproportionately hurt unionized labor. As part of her new food price plan, Harris included a call for aggressive antitrust crackdowns in the food and grocery industry, mentioning the Kroger-Albertsons merger by name in her speech this week.

None of the arguments against the merger make much sense on the merits, but the FTC—and the Democratic Party writ large—are stacking the legal deck to achieve a predetermined outcome that conveniently aligns with their policy priorities.

The saga started back in October 2022, when The Kroger Company and Albertsons Companies Inc. (the parent company for popular grocery chains like Safeway and Acme, among others) announced their plans for a $24.6 billion merger. The FTC promptly launched a 16-month investigation, culminating in a lawsuit in federal court to block the proposed merger.

Kroger is the fourth-largest grocery store chain in America—behind Walmart, Amazon, and Costco—and Albertsons is the fifth-largest. Once merged, the combined company would rise to third on the list. On the surface, this may seem to provide some support for the FTC's position, but American shoppers would be wise to read the fine print.  

In truth, if the deal were to proceed, a merged version of Kroger and Albertsons would still only make up 9 percent of overall grocery sales. To put this in further perspective, consider that Walmart—the nation's largest grocery provider—would continue to operate more stores (including its Sam's Club outlets) than a Kroger-Albertson combo and maintain grocery revenue that is more than twice that of the merged company. 

One could easily argue, in other words, that far from being a monopoly, a Kroger-Albertsons joint venture would be the best hedge against potential monopolies forming among the even-more-dominant firms above it on the grocery store food chain. But incredibly, the FTC pretends that two of those larger companies don't exist in the marketplace at all simply by working with their own definitions.

The FTC contends that only local brick-and-mortar supermarkets (what one might think of as a "traditional" grocery store) and hypermarkets (such as Walmart or Target, which sell groceries alongside other goods) count in the market for groceries. This narrow definition completely circumvents wholesale-club stores (such as Costco) and e-commerce companies that sell groceries (such as Amazon). 

Given that Amazon and Costco just happen to be the second- and third-largest grocery retailers in the United States, the agency is blatantly gerrymandering the definition of the marketplace. The agency's longstanding position is that the only relevant market is stores where consumers can buy all or nearly all of their weekly groceries, which begs the question: Has anyone at the FTC stepped foot inside a Costco recently? Many Americans use club stores like Costco and BJ's Wholesale Club as their primary grocery stores, with around 15 percent of Americans ages 18–34 reporting that they do most of their grocery shopping at Costco.  

Pretending that the internet doesn't exist makes even less sense. As the International Center for Law and Economics notes, 25 years ago a mere 10,000 households took part in online shopping, whereas today 12.5 percent of consumers (or over 16 million people) purchase their groceries "mostly or exclusively" online. Amazon is also preparing to make its own big push into brick-and-mortar grocery retailing as well, with CEO Andy Jassy saying last year that the company must "find a mass grocery format that we believe is worth expanding broadly."

Beyond the FTC's tortured marketplace definitions, its arguments for the alleged harms of a conjoined Kroger-Albertsons are equal parts unconvincing and outdated. In its complaint, the agency points to escalating grocery prices in recent years, and Harris echoed this by stating that she would enact a "ban on price gouging on food and groceries" by directing the FTC to impose "harsh penalties" on grocers. She also pledged to continue aggressive antitrust enforcement in the food sector, going so far as to highlight the Kroger-Albertsons merger as an example of the type of deal that could increase prices. However, as many commentators have pointed out, food price increases likely have more to do with inflation than any lack of competition in grocery markets.

In addition to the consumer price harms the FTC alleges, over half of the agency's legal complaint focuses on the alleged harm the proposed merger would cause to the unionized workers at Kroger and Albertsons. Both companies are heavily unionized—in contrast to Walmart and Amazon—and the agency claims that a combined company would have more leverage over unions given that the unions would no longer be able to play one company off against the other as a negotiating tactic. This glosses over the fact that the demand for labor is particularly competitive in the retail sector broadly, and workers could easily just jump ship to a different employer in the face of any exploitative terms pushed by the merged firm.

A final concern highlighted by some Democratic lawmakers is that a merged company could result in more store closures that lead to geographical areas within which there are few or no grocery options. Once again, this ignores the rise of club stores like Costco and online/home delivery grocery options. These alternatives reduce the plausible areas within which such food deserts can take hold, showing once again a poor understanding of the modern grocery marketplace.

Despite the many dubious underpinnings of the FTC's challenge, it fits with the Biden administration's aggressive antitrust emphasis over the past four years. While some observers were holding out hope that a Harris administration might curtail overzealous antitrust enforcement, her new food price agenda has poured cold water all over that (already wishful) thinking.

The post Harris Joins the FTC's Food Fight Against Kroger-Albertsons Merger appeared first on Reason.com.

Lost amid the drive to expand alcohol delivery in the wake of COVID-19 has been the corresponding push—actually starting even before the pandemic—to allow more types of stores to sell alcohol. While more and more states have allowed grocery stores to sell booze in recent years, these efforts have been fiercely resisted by independent liquor store owners who claim that their small businesses will be forced to shutter if large chain retailers are suddenly able to sell alcohol.

Up until now, these debates have largely been devoid of actual data, but new empirical research has been published showing that grocery store alcohol sales don't really impact mom-and-pop liquor stores after all. At long last, this is one protectionist argument that can finally kick the bucket—if only policy makers will let it die.

Currently, 11 states still forbid wine from being sold in grocery stores while four still prohibit beer. In recent years, states as politically diverse as Mississippi, Connecticut, and Maryland have considered bills to expand wine and/or beer to their grocery store outlets, only to be met with a tidal wave of opposition. Any place where such reform legislation appears, it is immediately opposed by liquor stores in the state—sometimes called "package stores"—which already sell wine and beer and want to prevent any grocery store from becoming their new competitors in the market.

The impact of this protectionism extends far beyond the alcohol market, as well. It is why less populated states that restrict grocery store booze, such as Mississippi, have only one Costco and one Whole Foods in the entire state—and zero Trader Joe's outlets. These stores often depend on their alcohol selections, including their private-label alcohol offerings, to make their business models viable in more locales. Restricting grocery store booze can actually lock entire food stores out of a state.

This setup works just fine for liquor store owners. As one store owner claimed when discussing a Mississippi reform bill: "out of state retail corporations harvest money that could be recirculating in our local economies….Big out-of-state grocery and box retailers have had years of practice of profiting off the destruction of public health in other states." He went on to note that alcohol markets are "unable to regulate themselves without being destructive to public health and safety" and that if alcohol consumption increased, it would put "undue burden" on taxpayers, public safety officials, and the health care industry. One would be hard-pressed to find a business owner who so loathes the very product he sells, but these arguments are sadly par for the cronyist course when it comes to blocking grocery store booze sales.

While it is unclear how one might go about "harvesting" money, it is clear what this package store owner is really concerned about: protecting his bottom line. Unfortunately, package and liquor store lobbying associations are extremely influential in many states, which leads to reform efforts silently dying in committee year after year.

That's why states like Oklahoma and Colorado have opted for ballot initiatives to expand grocery store alcohol sales, as consumers overwhelmingly are in favor of it. But even successful ballot initiatives have not ended the debate, as a group of Colorado legislators introduced a bill in this year's legislative session to overturn the state's wine-in-grocery-stores ballot initiative (which only went into effect in 2023).

The main argument in favor of this repeal bill? "I don't want to see the independent liquor stores put out of business. They are owned by diverse entrepreneurs—50 percent are women- and minority-owned businesses—and provide jobs," said Colorado state Rep. Judy Amabile, a Boulder area Democrat who cosponsored the legislation. 

In other words, Justice Antonin Scalia's famous quip about the notorious Lemon test in Supreme Court jurisprudence—analogizing it to "some ghoul in a late night horror movie that repeatedly sits up in its grave and shuffles abroad, after being repeatedly killed and buried"—could just as readily apply to antigrocery alcohol claims.

After years of scaremongering and anecdotal supposition about whether grocery stores will or will not kill off mom-and-pop booze stores, facts have finally been injected into the debate by FMI, a food industry group. A new FMI paper by Vincenzina Caputo of Michigan State University studies the impact of Tennessee's 2016 reform that allowed wine to be sold in grocery stores in the Volunteer State. The paper compared the number of liquor licenses in post-2016 Tennessee with a hypothetical "synthetic version" of Tennessee in which the reforms were never passed. (This was done via a weighted average of control states that did not pass wine-in-grocery-store legislation.)

The report—a copy of which I obtained from FMI—shows just 62 fewer liquor stores selling wine in postreform Tennessee compared to the nonreform synthetic version of Tennessee—a result which was found to be not statistically significant. Overall, the quantity of liquor stores selling wine in Tennessee increased from 505 stores in 2004 to 733 in 2022, and liquor stores still held the greatest number of wine-selling licenses in the state in the postreform years. 

Further, the Tennessee wine-in-grocery-store reform accounted for a 23 percent increase in wine sales tax volume for the state—undermining the idea that chain stores "harvest" away money from local economies and the tax base.

These results show that our favorite mom-and-pop shops can do just fine in the wake of grocery stores being allowed to sell alcohol. In fact, many of these smaller stores have found a niche specializing in craft beer or hard-to-find wines and liquor that grocery stores have little interest in carrying, a point that both independent store owners and economists have made.

This new research provides a much-overdue corrective to the protectionist claims that small liquor stores have been peddling for years. Now lawmakers just need to listen.

The post Grocery Store Booze Doesn't Hurt Mom-and-Pop Stores appeared first on Reason.com.

The government has a long history of using tracking technology to ascertain our whereabouts, our habits, and even our preferences. From cellphones and cars to snow plows and garbage trucks, governments seemingly want to track anything that moves—or moos.

The USDA recently finalized a rule—set to go into effect in a few months—that will require all cattle and bison being moved across state lines to be tagged with radio-frequency identification (RFID) ear tags. RFID technology uses radio frequency waves to transmit and collect data by way of a system of electronic tags and scanners. The technology is best viewed as a type of electronic or remote barcode, in which scanners can read an RFID chip anywhere from a few meters away to around 100 meters away. In some ways analogous to a shorter-range GPS system, RFID can track geographic location and also operate as a system of data collection and storage.

In the context of livestock, a quick scan of an RFID tag can pull up information like a cow's date of birth, weight, vaccine records, ownership history, what farms it has been to, and what movements it has made. The USDA is justifying its RFID mandate on public health grounds, claiming that it can help trace and eradicate potential disease outbreaks among livestock, such as mad cow disease or hoof-and-mouth disease. 

While plausible at first blush, it is far from clear that the mandate will accomplish its intended objective, and it is very clear that it will disproportionately hurt small and independent ranchers and cattle farmers.

For one thing, most ranchers already want to be able to identify their cattle and have used physical metal tags for years to do so. Electronic RFID tags are twice as expensive as traditional metal tags and also require an upfront investment in scanners and software, making the switch cost-prohibitive for many small farms. Farmers also complain that electronic tags are harder to identify visually from a distance, which matters during cattle drives and other large and quick-paced movements of livestock. Most farmers that use electronic tags therefore also still tag their animals with traditional physical tags, necessitating a double-investment in two types of tags.

There's also the issue of tag retention. "I've talked to many people who have used these RFID tags and their cows have lost 50 percent after five years," Ken Fox, a South Dakota cow farmer and chair of R-CALF USA's Animal Identification Committee, told Wisconsin State Farmer. "By year nine or ten only 14 percent of the tags were left; and our beef cows can be with us for 15 to 20 years, so that's a serious concern." Fox also notes that the RFID scanners often need to be replaced every four or five years.

Fox points out that not all livestock operations are created equal. For dairy farmers who keep their livestock penned up, frequent replacing of tags is more logistically feasible, if still expensive. But for cattle ranchers, tag replacement can be entirely impracticable. "That just doesn't work when we've got cattle on 10,000 or 30,000 acres of range land and we handle those cattle maybe twice a year," said Fox. "If they lose those tags, how are we going to know who those cattle are?" Amish farmers have also opposed electronic tagging on moral grounds given their opposition to technology.

Large cattle operations can afford to double-tag their livestock with physical and electronic tags, and in fact, many have already done so voluntarily—which means the mandate's burden will fall heaviest on small and medium-sized farms and ranches. The USDA rule also favors large cattle operations more directly, including allowing them to use so-called "group identification" for livestock herds of a certain size and continuity.

"The new rule also provides for large-scale cattle operations to use one ID per group of a certain size, instead of one ID per animal," writes Remington Kesten in a blog post for David's Pasture, a small-scale cattle operation in Missouri. "This means that the smaller farms will actually incur more cost per animal once the mandate takes effect, than the big players will." 

Worse yet, this group identification actually undercuts the USDA's entire disease-traceability rationale for mandated electronic tagging. "This intentional loophole also reduces the traceability for large farms and exporters, contradicting the USDA's primary reason for mandating RFID Ear Tags in the first place," notes Kesten.

The rule also fails on its own terms. While supporters point to the 2003 mad cow disease outbreak in Washington state as an example of a situation where electronic tagging could have allowed for quicker identification of where the disease originated, it's worth noting that the government was still able to track the original diseased cow back to its birthplace farm in Canada within 13 days.

It's also worth recognizing that livestock disease outbreaks are exceedingly rare in the United States. An article in Lancaster Farming, which takes a generally favorable bent toward the USDA mandate, notes that hoof-and-mouth disease was last found in America in 1929. Farmers such as Fox have also highlighted the successful combatting of brucellosis in the United States, which was accomplished without electronic tagging. 

If anything, it is large-scale commercial farms that are most responsible for disease outbreaks. "There is no data in over a decade showing that food borne illnesses have resulted from disease on small farms," writes Kesten. "All major disease outbreaks in recent years have occurred on large farms." In other words, small and independent ranchers are bearing the brunt of a new rule in the name of fixing a problem that they have nothing to do with.

Finally, the USDA rule creates significant data privacy concerns. RFID tags cannot distinguish between scanners—which are portable and easily carried in hand—so potentially anyone with a scanner could access the data contained in each tag. Ominously, the USDA rule opts to use the term electronic identification tags instead of the RFID acronym, although for now RFID tags are the only technology approved by the USDA for livestock tagging. 

This flexible language means that USDA is explicitly leaving the door open to even more comprehensive tracking technology. This could come in the form of "active" RFID tags (instead of "passive" ones as currently contemplated) that have a greater range of readability or even GPS tracking of cows via satellites.

One small beacon of hope for American ranchers is that Congress appears to finally be waking up to the USDA's overreach. Sen. Mike Rounds (R-S.D.) recently introduced legislation that would prohibit the USDA from implementing any rule that mandates electronic tagging technology for cattle and bison.

The USDA is attempting to find a solution for a problem that has already been largely addressed through current practices. 

Fox puts it more colorfully: "Someone told me this story—NASA spent millions trying to develop a pen that could work in sub-zero temperatures and zero gravity. The Russians just used a pencil."

The post The Government Wants To Track Your Steak appeared first on Reason.com.

As anyone who has traveled by plane in the last decade can attest, one of the few—perhaps only—things that make modern commercial flying tolerable is a strong onboard libation. For those lucky enough to travel internationally, the booze is sometimes even free. But could this last vestige of mile-high sanity be snatched from us like a water bottle at an airport security checkpoint? 

Newly released research argues that it should be. The study, published in Thorax by researchers from the Institute of Aerospace Medicine in Germany, concludes that in-flight alcohol can increase the risk of heart attack. While the topline conclusion sounds concerning and compelling, the research itself is less so. 

The researchers used a sampling of a mere 48 people between 18 and 40 years of age, half of whom slept in a sleep lab that mirrored normal on-ground conditions while the other half slept in a lab that simulated high-altitude cabin pressure. On the first night of the test, everyone was instructed to go to bed. On the second night, each group was given the assignment of drinking booze and then passing out. (How one qualifies to become a test subject for a study of this kind is unclear at the time of this writing). The researchers then monitored each group's heart rate and sleep patterns.

The results showed that those who consumed alcohol and slept in the high-altitude simulation experienced the most heightened heart rates and the lowest oxygen-blood levels while sleeping. The researchers conclude that those with existing cardiac and pulmonary conditions could be in danger—as well as those with sleep apnea and other respiratory ailments—but even healthy individuals were at risk.

"Even in young and healthy individuals, the combination of alcohol intake with sleeping under hypobaric conditions poses a considerable strain on the cardiac system and might lead to exacerbation of symptoms in patients with cardiac or pulmonary diseases," the researchers state. "Our findings strongly suggest that the inflight consumption of alcoholic beverages should be restricted."

One might be tempted to brush this off as merely the work of a few teetotalers from across the pond, but as students of the temperance movement know well, prohibitionary brush fires can start with the smallest of sparks. In fact, the in-flight booze ban movement has already begun to catch on in America. 

During the COVID pandemic, reports of unruly and intoxicated airplane passengers getting into physical altercations with flight attendants led several airlines to suspend their on-board alcohol service entirely. Despite this built-in market reaction—after all, no airline wants to be the arena for a drunken brawl in the clouds—numerous federal lawmakers inevitably joined the booze ban chorus.

Rep. Peter DeFazio (D–Ore.) called for a ban on to-go alcohol from airport bars in 2021 after he allegedly watched a fellow passenger order three shots of alcohol in a to-go cup from an airport bar and then board the plane. Sen. Ed Markey (D–Mass.), citing reports that anti-mask passengers were the ones creating the on-board ruckuses, went on record in support of banning the hard stuff at least temporarily.

The study claiming to show heart and other health risks will likely further embolden the no-alcohol-on-planes crowd. Lost in all of this is the reality that, as Rep. DeFazio's anecdote shows, many of the unruly passengers that caught media headlines involved those who were already intoxicated upon boarding the plane or brought their own alcohol on board.

Under Federal Aviation Administration regulations, it is already illegal for consumers to imbibe alcohol they bring onto a plane: "No person may drink any alcoholic beverage aboard an aircraft unless the certificate holder operating the aircraft has served that beverage to him." The rule goes on to state that airlines cannot permit already intoxicated passengers to board their planes or serve them more alcohol onboard. 

Therefore, a complete ban on in-flight alcohol would simply be another example of the government implementing more rules to address behavior that is largely already illegal. It also would clearly incentivize more passengers to sneak their own alcohol on board—something that already happened when airlines suspended alcohol service during the pandemic. It doesn't take a libertarian to understand that if you ban a legal product—like in-flight alcohol service—you will inevitably create a more robust black-market workaround. 

A better approach would be to allow airlines to continue selling and serving in-flight alcohol. Like servers at a bar, flight attendants can monitor how much alcohol each passenger has consumed, instead of supercharging an uncontrollable airborne BYOB free-for-all. As for potential health concerns, passengers should be empowered to make their own decisions based on knowing themselves best. Most people already do this in situations such as avoiding air travel after scuba diving or major surgery, and there is no reason they can't do the same in determining whether to drink before or during a flight.

Some clever travelers have pointed out that the above-mentioned FAA regulation merely says that a person cannot drink alcohol on an airplane unless it is served by airplane staff. This technically suggests that you can bring your own alcohol on board—as long as it's in a mini bottle—and simply ask your flight attendant to serve it. At least a few airlines appear to be open to this.  

Now might be the time to find one such airline, book a flight, and enjoy this Prohibition-era 12-Mile Limit cocktail in defiant—but technically still legal—protest:

Prohibition-Era 12-Mile Limit Cocktail

Ingredients:

• ½ oz rye whiskey
• ½ oz cognac
• ½ oz rum
• ½ oz grenadine (real grenadine, not red syrup)
• ½ oz lemon juice 
• Lemon wedges (for garnish)
• Ice

Instructions:

1. Obtain two mini bottles of liquor, each under the 3.4 oz TSA liquid carry-on limit.
2. Fill one mini bottle with ½ oz rye whiskey and ½ oz cognac, topped off with your favorite rum.
3. Fill the second mini bottle with ½ oz grenadine and ½ oz lemon juice. Store this bottle in the fridge until leaving for the airport.
4. Bring both mini bottles on board with you in your carry-on.
5. Ask your flight attendant to pour the contents of the liquor-filled bottle over a cup of ice.
6. Add the grenadine and lemon juice mixture to the cup.
7. Garnish with lemon wedges.
8. Stir with the provided plastic stirring stick.
9. Sit back, relax, and enjoy your cocktail (while you still can).

The post Oh God, What If Congress Bans Drinking on Airplanes? appeared first on Reason.com.

The recent wave of headlines about shoplifting and retail theft, accompanied by viral videos of people brazenly walking out of stores with stolen goods, has captured the attention of the media and politicians. The tough-on-crime crowd has advocated for a crackdown on shoplifters through more aggressive prosecution and harsher penalties. Others have emphasized the need for rehabilitation for offenders. 

One group of progressive California lawmakers claims to have found an even better solution: banning self-checkout machines from stores in the name of fighting crime. In reality, this "anti-crime" bill is nothing more than naked protectionism for union jobs. 

The proposed legislation would prohibit groceries and other retail stores from using self-checkout machines unless a host of conditions are met. These include having at least one staffed employee for every two self-checkout machines (and the employee must be exempt from any other duties), only permitting the machines to be used by shoppers with 10 items or fewer, and ensuring at least one regular cashier lane is also available at all times.

The bill's sponsor, state Sen. Lola Smallwood-Cuevas (D–Los Angeles), calls her approach "smart" on crime instead of "hard on crime," telling The New York Times: "We have so many bills in this Legislature that are trying to increase penalties….We know that what makes our community safe is not more jail time and penalties. What makes our community safe is real enforcement, having real workers that are on the floor." 

To underscore her point, Smallwood-Cuevas cites a study suggesting that retail theft is up to 16 times more likely to occur at self-checkout machines than at traditional registers, leading to an estimated $10 billion in annual losses for retailers. 

A closer look at the fine print of the bill, however, reveals the true intent behind it. The legislation mandates that any store seeking to install self-checkout machines must first produce a study analyzing, among other things, the number of employees "whose duties would be affected by the workplace technology," as well as the "total amount of salaries and benefits that would be eliminated as a result of the workplace technology." The study must then be provided to employees potentially impacted by the technology (or their collective bargaining representatives) and posted "in a location accessible to employees and customers."

Were this a game of poker, this mandated study would be the tell: Smallwood-Cuevas and her fellow progressives are trying to tuck a pro–union jobs bill inside the Trojan horse of crime prevention. 

Smallwood-Cuevas was a labor organizer before her legislative career, and some of the bill's biggest sponsors are labor unions. A press release on the United Food and Commercial Workers' website lauds the legislation, with the president of the local chapter complaining that "employers have increasingly implemented automated checkout to drastically cut staffing and reduce labor costs." The press release does not mention the word crime at all and only uses theft twice and shoplifting once. In contrast, jobs, staffing, and worker displacement are referenced a total of 10 times. 

Efforts to limit self-checkout in other blue states provide corroborating evidence, such as a proposed anti-self-checkout ballot initiative in Oregon that labor interests tried to get on the 2020 ballot, explicitly positioned as a pro–union jobs measure. 

While a pro-labor bill in California may seem utterly unremarkable, some on the right may be buying the bill's anti-crime framing. Both Fox Business and the New York Post ran articles highlighting the bill as an anti-theft measure, with little reference to the real motivations behind the legislation. Given the right's increasing embrace of labor unions, it is not hard to envision an unholy alliance of pro-labor progressives and tough-on-crime populist conservatives supporting bills around the country to eliminate self-checkout.

Supporters of the bill and numerous media outlets have cited two examples of large retail chains making their own internal decisions to reduce or remove self-checkout machines to clamp down on theft. The aforementioned statistics about self-checkout lanes leading to more shoplifting are also frequently referenced. But these points ironically cut against the need for government involvement: If self-checkout machines are really leading to massive inventory losses for stores, then retailers themselves have a direct bottom-line incentive to scrap self-checkout. 

No one cares more about inventory loss than store owners, whose entire business model is predicated on customers actually paying money for their products. That is why some retailers are reevaluating the efficacy of self-checkout and experimenting with new monitoring tactics such as "smart video" cameras that can halt the self-checkout process if they notice a customer declining to scan any items. 

There already is a built-in market response to theft concerns around self-checkout—more government interference is simply not needed. If lawmakers still want to ban self-checkout machines anyway, they should at least be honest about why.

The post The Real Reason for Self-Checkout Bans appeared first on Reason.com.

America's tax code is notoriously convoluted, but the complexity really sparkles when it comes to the federal government's approach to alcohol taxation. Wine, beer, and liquor are all subject to varying tax rates based on intricate calculations, but the so-called "bubble tax" for hard cider is the star of this regulatory circus.

Unbeknownst to most Americans, the tax rate for alcoholic cider is based on, among other things, the amount of carbonation the drink contains. Yes, America technically already has a carbon tax and the feds have literally found a way to tax air. Craft cider makers are being flattened by an arbitrary system that is strangling the industry's long-term potential.

Under the federal code, alcoholic cider is taxed as either hard cider, still wine, or sparkling wine, and the implications of which category applies are not insignificant. Hard cider is taxed at a modest $0.226 per gallon, while sparkling wine is taxed at a whopping $3.40 per gallon—a staggering 1,400 percent increase. For every 100 gallons of cider produced, Uncle Sam either takes $22 in taxes or $340 in taxes. 

What determines how cider is categorized and taxed? A ridiculous three-part formula based on a) what type of fruit is used to make the cider, b) the alcohol content of the cider, and c) what carbonation level the cider contains. 

Imagine you're a cider maker aiming for the lower tax rate to apply to your product. You need to produce a cider that is made from apples or pears (with no other fruit additions), is less than 8.5 percent alcohol by volume (ABV), and has less than or equal to 0.64 grams of carbon dioxide (CO2) per 100mL. However, if you decide to add some blackberries or grapes, it's considered a still wine and taxed at $1.07 per gallon—but only if it has less than 0.392 grams of CO2 per 100mL. If you go over that carbonation threshold, you've unlocked sparkling wine status and with that the $3.40 per gallon tax rate.

Confused? It gets worse. 

If your pear or apple cider is over 0.64 grams of CO2, it gets the sparkling wine rate. But it's knocked back down to the still wine rate if it's less than 0.392 grams of CO2 and the ABV level is 8.5 percent or higher. Whether the bubbles are added via "force carbonated" or "bottle conditioned" carbonation creates another tax delineation for the sparkling wine category. A flow chart is needed just to unpack all the potential permutations and combinations:

The implications of this tax labyrinth extend to consumers. A report from Wine Enthusiast notes that modern drinkers have grown to expect beer-like carbonation levels in their alcoholic beverages, thereby creating pressure for cider makers to add more carbonation to their products. 

One cider maker from Oregon reported that he receives frequent emails from consumers complaining about flat cider, which they incorrectly blame on him rather than the government. If adding more carbonation could financially cripple a small business, it's little wonder many cider makers feel that their hands are tied. 

The disparity is glaring when compared to beverages like beer, hard seltzer, and regular soda, which face no such carbonation-based tax penalties. It's a clear disconnect from market realities and consumer demands, which increasingly favor diverse flavors and more carbonation in ciders.

Craft cider makers are doing their best to diversify the carbonation levels and fruits in their ciders to respond to consumer demand, but it's clear the industry has a hard ceiling on its growth due to these tax rules. This is why many cider makers state that their ability to expand—and the ability of the industry as a whole to thrive—is being pointlessly inhibited.

The bubble tax is now getting more attention due to a recent bipartisan bill introduced in Congress, which aims to level the playing field between apple and pear ciders and those made with other fruits. While promising, the best reform would be to convert the entire system of alcohol taxation to one based simply on a drink's ABV level rather than arbitrary classifications.

Craft cider, a beverage steeped in American history, deserves better. Another Michigan cider maker made it even simpler: "It's not expressing the free market. The government needs to get out of the way."

The post The Federal Government is Literally Taxing Air appeared first on Reason.com.