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.

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.

American federalism is struggling. Federal rules are an overwhelming presence in every state government, and some states, due to their size or other leverage, can impose their own policies on much or all of the country. The problem has been made clearer by an under-the-radar plan to phase out diesel locomotives in California. If the federal government provides the state with a helping hand, it would bring nationwide repercussions for a vital, overlooked industry.

Various industry and advocacy groups are lining up against California's costly measure, calling on the U.S. Environmental Protection Agency (EPA) to deny a waiver needed to fully implement it. In the past month, more than 30 leading conservative organizations and individuals, hundreds of state and local chambers of commerce, and the U.S. agricultural sector have pleaded with the EPA to help stop this piece of extremism from escaping one coastal state.

Railroads may not be something most Americans, whose attention is on their own cars and roads, think about often. But rail is the most basic infrastructure of interstate commerce, accounting for around 40 percent of long-distance ton-miles. It's also fairly clean, accounting for less than 1 percent of total U.S. emissions. Private companies, like Union Pacific in the West or CSX in the East, pay for their infrastructure and equipment. These facts haven't stopped the regulatory power grab.

Most importantly, the California Air Resources Board (CARB) regulation would have all freight trains operate in zero-emission configuration by 2035. At the end of the decade, the state is mandating the retirement of diesel locomotives 23 years or older, despite typically useful lives of over 40 years. Starting in 2030, new passenger locomotives must operate with zero emissions, with new engines for long-haul freight trains following by 2035. It limits locomotive idling and increases reporting requirements.

Given the interstate nature of railway operations, California needs the EPA to grant a waiver. If the agency agrees, the policy will inevitably affect the entire continental United States.

The kicker is that no technology exists today to enable railroads to comply with California's diktat, rendering the whole exercise fanciful at best.

The Wall Street Journal's editorial board explained last November that while Wabtec Corp. has introduced a pioneering advance in rail technology with the launch of the world's first battery-powered locomotive, the dream of a freight train fully powered by batteries remains elusive. The challenges of substituting diesel with batteries—primarily due to batteries' substantial weight and volume—make it an impractical solution for long-haul trains. Additionally, the risk of battery overheating and potential explosions, which can emit harmful gases, is a significant safety concern. As the editorial noted, "Even if the technology for zero-emission locomotives eventually arrives, railroads will have to test them over many years to guarantee their safety."

The cost-benefit analysis is woefully unfavorable to the forced displacement of diesel locomotives. To "help" the transition, beginning in 2026, CARB will force all railroads operating in California to deposit dollars into an escrow account managed by the state and frozen for the explicit pursuit of the green agenda. For large railroads, this figure will be a staggering $1.6 billion per year, whereas some smaller railroads will pay up to $5 million.

Many of these smaller companies have signaled that they will simply go out of business. For the large railroads, the requirement will lock up about 20 percent of annual spending, money typically used for maintenance and safety improvements.

Transportation is the largest source of U.S. emissions, yet railroads' contribution amounts to not much more than a rounding error. The industry cites its efficiency improvements over time, allowing railroads today to move a ton of freight more than 500 miles on a single gallon of diesel. Its expensive machines, which last between 30 to 50 years and are retrofitted throughout their life cycles, are about 75 percent more efficient than long-haul trucks that carry a comparative amount of freight.

As Patricia Patnode of the Competitive Enterprise Institute, which signed the aforementioned letter to the EPA, recently remarked, "Rather than abolish diesel trains, CARB should stand in awe of these marvels of energy-efficient transportation."

President Joe Biden talks a lot about trains, but his actions since taking office have consistently punished the private companies we should value far more than state-supported Amtrak. In this case, EPA Administrator Michael Regan and the White House need not think too hard. They should wait for reality to catch up before imposing on the rest of us one state's demands and ambitions.

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The post How California's Ban on Diesel Locomotives Could Have Major National Repercussions appeared first on Reason.com.

During the height of the pandemic summer of 2020, the proprietors of the Burning Bridge Tavern worked with local officials in Wrightsville, Pennsylvania, to host a series of outdoor gatherings for the community.

For their trouble, the bar's owners got slapped with a series of citations by the Pennsylvania Liquor Control Board (PLCB), the government agency that oversees and manages the sale of alcohol in the state. The citations were ticky-tack offenses, according to Burning Bridge's chief financial officer, Mike Butler. Twice, the bar was cited for noise violations because they'd allowed a band playing at the gathering to plug into the tavern's electricity supply. Another offense occurred when the owners and some family members were drinking inside the tavern, which was closed to the public, during a period when indoor dining was prohibited.

A frustrating situation, but not the end of the world. Burning Bridge's owners paid the fines associated with the citations and assumed that was that. But then the bar had to renew its liquor license.

"They denied it. They said, 'Oh, you're the guys that got all those citations,'" Butler says. "It was a real gut punch."

Turns out, over the past two years the PLCB has pushed dozens of Pennsylvania establishments that racked up pandemic-​related citations to sign "conditional licensing agreements" to renew their liquor permits. In some cases, those agreements have forced the sale of licenses—but in most cases, as with Burning Bridge, they've added additional conditions to the license that could prevent a future renewal from being approved.

While the PLCB cannot revoke existing licenses, the board is empowered to object to the renewal of a license or to demand the license can only be renewed conditionally. "In extreme cases," PLCB Press Secretary Shawn Kelly says, the PLCB can force the sale of a liquor license, though the board only pursues that option when "there is an operational and citation history that calls for such an agreement."

Even though Burning Bridge's owners weren't forced to sell their license, Butler says signing the conditional licensing agreement has come with real costs: The bar's insurance premium tripled as a result of being viewed as a greater risk.

Typically, those agreements have been used to curb nuisance bars or force establishments with a history of legal problems, like serving underage patrons, to clean up their acts. Recently, however, the PLCB has taken a hardline stance against establishments that violated pandemic-era rules.

"The people who violated the governor's mandates and orders should face some consequences," argued Mary Isenhour, one of the PLCB's three board members, at a January 2022 meeting where the first several of the COVID-related conditional licensing agreements were approved.

Isenhour was responding to an objection raised by a fellow board member, Michael Negra, who argued that the PLCB should take the view that businesses had "paid their dues" during the pandemic and should not face additional sanction now. Negra left the PLCB in June 2022 and now works for a ​Pittsburgh-based lobbying firm. He did not return requests for comment.

After Negra's departure, the PLCB has unanimously approved dozens of conditional licensing agreements for COVID-​related violations, including at least 10 that have required the sale of a license, based on a review of PLCB meeting minutes.

Kelly, the PLCB spokesman, maintains that licensees are "under no obligation" to sign conditional licensing agreements.

But any licensee that refuses would face a set of unattractive alternatives: not having the license renewed, or being drawn into a legal battle against the PLCB in state court.

"Do you risk your entire business, your license, the loans, all of that to fight" in a real court, asks Butler. "Or do you just kind of hold your nose and take your medicine? Tactically, for us, we weren't in a position to say, 'Yeah, we'll run that risk.'"

Chuck Moran, executive director of the Pennsylvania Licensed Beverage and Tavern Association, acknowledges that pandemic-era public health orders left many establishments with a difficult choice between following the law and surviving financially. Fairly or unfairly, "those who broke the rules went the wrong way and now they're paying the price," he says.

The whole matter raises some complicated questions about how our political institutions ought to handle, with the benefit of hindsight, the unprecedented circumstances created by the pandemic and policy makers' response to it.

"The feeling was that our government really isn't working to try and help us," says Butler. "At this point, it feels like they're coming after us."

The post Liquor Regulators Are Seeking Revenge on Bars That Broke Pandemic Rules appeared first on Reason.com.