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Wine Industry Fighting Tax-Hike Plan

May 01, 1986|DANIEL P. PUZO | Times Staff Writer

A potentially devastating 50% drop in California wine sales is anticipated by officials of the state's industry if Congress enacts legislation to increase federal excise taxes, possibly by as much as 400%, on all wines sold in this country.

The bill is being reviewed in the Senate Finance Committee and is sponsored by its chairman, Sen. Bob Packwood, (R-Ore.). Hearings were held last week on the proposal and Packwood is in the process of consulting with fellow committee members on the measure.

A formal vote on the bill has not been scheduled, but California wine-industry representatives are opposing the tax increase, which they predict would add at least $1 to the price of a 1.5-liter bottle of table wine.

"The wine industry is currently under (financial) stress and to raise (excise) taxes is not realistic," said John De Luca, president of the Wine Institute in San Francisco. "Sales will drop by 50% with all the attendant effects on production, acreage and jobs."

The current Packwood plan would tax spirits, beer and wine equally and thus replace the current structure, which has spirits and beer paying a substantially higher rate than wine. The new tax rate would also increase as beverage prices rise rather than remaining at a preset level as it does today.

However, only wine would also be taxed proportionately to alcohol content. Thus, a wine with 14% alcohol content, such as Zinfandel, would necessitate a higher tariff than a Zinfandel Blanc at 8%.

De Luca estimates that what he calls this "triple whammy," will bring the current 17 cent-a-gallon excise tax rate on wine to as high as 87 cents.

A Senate Finance Committee staff member, who asked for anonymity, said that there has yet to be a review of the wine industry's claims that sales will be seriously hurt by the proposed tax increase.

"(The wine industry) may be right (about sales losses) or they may not be. It's something that we have to look at," the staff member said.

The pressure to increase taxes on all alcohol beverages comes not only from government sources looking for increased revenue to stem budget deficits, but also from several groups concerned with the so-called social costs of drinking.

A case is being made before the committee that the health problems related to alcohol abuse are significantly high enough to justify additional taxes on these beverages, according to the congressional aide, who also said that the excise tax on wine has not increased since 1951.

Red Meat's Blues--There is certain to be concern within the beef industry over a recent prediction by the U.S. Commerce Department. The federal agency has projected that 1986 will be the year when, for the first time, Americans eat more chicken than beef.

Analysts estimate that per capita consumption of chicken will increase to 73 pounds this year, a 21% jump from the 1979 level of 60.5 pounds per person, according to a report on the projection by California Farmer magazine.

Beef, on the other hand, continues its decade-long slide, and per capita consumption could decline to 72 pounds, a 5% reduction from 1985 levels. The Commerce Department offers several explanations for the problems now encountered by beef, which for years reigned as America's favorite source of protein.

"The reasons for the change include competition from fast-food chicken shops, an aging U.S. population (older Americans tend to eat less meat, particularly red meat), a continued concern over fat and cholesterol, and, of course, price," the magazine reported.

Buy Outs and Discounts--Whether consumption of chicken can, in fact, outdistance that of beef during the second half of this year is still in doubt, despite the government's projection.

Wholesale beef prices are expected to drop significantly as more dairy farmers take advantage of a U.S. Department of Agriculture buy-out program aimed at reducing the nation's staggering milk surplus. The $1.8-billion plan offers farmers throughout the country a financial incentive to liquidate a portion of their herds as a means of reducing milk production.

Estimates state that more than 10% of the nation's dairy herd will be slaughtered or exported, including 950,000 cows and 600,000 heifers or calves. The program is expected to reduce annual milk production by 12 billion pounds.

As meat from the slaughtered dairy cows reaches wholesale channels, there will be downward pressure on beef prices. Consequently, the program may provide consumers with some attractive buys in the coming months and lure back those who purchase chicken solely for financial reasons.

In fact, the effect of the USDA program on beef prices has led the National Cattlemen's Assn. to sue the agency in U.S. District Court seeking a halt to the plan. The group contends that the influx of beef is "seriously depressing cattle markets," according to wire service reports.

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