Bringing Bourbon to Capitol Hill

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Photo by Spencer Platt/Getty Images

On June 17, representatives Brett Guthrie and John Yarmuth, both from north central Kentucky, announced the formation of the Congressional Bourbon Caucus; according to their press release, it is "dedicated to maintaining and strengthening the bourbon industry in the United States and educating other Members on the legislative and regulatory issues impacting the industry." Seventeen other representatives, mainly from Kentucky and Tennessee, immediately joined their ranks.

While Capitol Hill happy hours have yet to be publicized, the Caucus is already working on a slate of issues, mostly regarding proposals to increase excise taxes on liquor as a part of the president's health care plan.

I recently spoke with Rep. Yarmuth, a Democrat from Louisville, to learn a little more about his plans for the group.

Clay Risen: What was your inspiration for creating a Bourbon Caucus?

Jim Yarmuth: It was one of those spontaneous decisions. Someone mentioned the Wine Caucus, and I said well, why is there a Wine Caucus and no Bourbon Caucus? Bourbon is the only indigenous American spirit. And we certainly have issues in the federal government that affect Bourbon and the liquor industry.

CR: And what will it do, now that it's up and running?

JY: The issues that we are most immediately concerned with are tax and trade. There are two issues we have interest in: a proposal to increase the federal excise tax on liquor is one, and secondly there is a proposal in the president's health care plan to eliminate the LIFO accounting concept, which a lot of liquor distillers use because by law their product has to age, and some of their product is ten, twelve years old and older, and it would be very damaging to distillers if it were eliminated.

CR: What is LIFO accounting?

There are two ways to do inventory for tax purposes. One is FIFO, or "first in, first out," and the other is LIFO, or "last in, first out." Let's say Brown-Forman sells a bottle of Bourbon today; they can either pay tax on the basis of when it was created, which might be eight years ago, or it might be twenty years ago, or they can pay tax as the bottle that replaces it costs. The reason LIFO was created in the beginning was to give businesses a way to account for inflation in a product that took a long time to make. What they've done is allow the distiller to create a reserve of those taxes. The taxes are not avoided; they are just postponed. Right now Brown-Forman has $900 million worth of deferred taxes based on LIFO.

If they were forced to pay them off right now, to revert to the other accounting method, it would basically break them. LIFO is not used by overseas distillers, but they have a lower corporate tax rate. What American distillers are saying is, if you ended LIFO, we would have to move or sell out to a foreign corporation, because we couldn't afford to compete.

CR: Where is the industry right now, in this economy?

Bourbon's holding it's own. Brown-Forman's income has been down some; the recession is having an impact on everyone. But they're not going broke right now, that's for sure. The other thing, from Kentucky's point of view, is the role of Bourbon in tourism. They've created a Kentucky Bourbon Trail and people travel through the state visiting various distilleries.

CR: It's a great trip; I go every year. When I talk to my grandparents, or even my parents, they recall Bourbon as one of the dominant, if not the dominant, hard liquors in America. Today, people know what it is, but it's not as widely consumed. Do you think Bourbon can make a comeback?

I think it is making a comeback. Two things. The international demand for Bourbon is increasing; Jack Daniels is a huge seller in a lot of places, particularly Asia, and though it's not technically a Bourbon, it's owned by Brown Forman, so it's close enough. And that's why we have some Tennessee members who are in the Caucus. So it's definitely expanding it market share across the world. And second, over the last ten or fifteen years, the Bourbon industry has begun producing boutique Bourbons, sort of like what the Scotch industry did with Single-Malt Scotch. That's created a whole new cachet with Bourbon, so it's no longer the old Southern guy drinking Early Times or Jim Beam. There's a kind of curiosity about it, trying various brands.

CR: What's your personal connection to Bourbon? Do you have any early memories of it?

I've lost all my memories. But seriously, I grew up in Louisville, going to the Kentucky Derby and drinking mint juleps. I've been drinking Bourbon since I started drinking.

CR: Do you remember the first Bourbon you ever tried?

Oh gosh, yeah I do. It was Old Fitzgerald.

CR: That's a good one. You probably don't want to answer this, but do you have a favorite Bourbon?

You're right--I don't want to answer that.