3 of The Bourbon Review publishers with former KY Governor and current State Senator Julian Carroll.  Carroll was one of the few lawmakers who voted against the alcohol tax increase. L-R Seth Thompson, Gov. Julian Carroll, Justin Thompson, and Brad Kerrick

April 15^th. Tax Day. The only day working Americans can get a pass on cursing Uncle Sam, threatening desecration to every monument in Washington, D.C. and dreaming about changing their citizenship; as long as that check to the IRS is already postmarked and in the mail. This installment of Tax Day 2009 will see gatherings of citizens all over the U.S. protesting at “Tea Parties” to rally against what the organizers believe is the government’s misuse of their income that’s paid as taxes. Arguing over taxes in this day of age is not an original argument for this country. The first Tea Party happened in Boston over 235 years ago in 1773. A few colonists were angry over paying tax on imported tea, so they simply threw the tea in the sea. Shortly after the original “taxapalooza” Americans in 1794 once again went berserker on tax collectors and staged the Whiskey Rebellion. In this instance, Americans in Pennsylvania were outraged over the government’s enforcement on taxes against distilled spirits. George Washington quickly squashed the uprising, causing many of these distillers to relocate to Kentucky and start-up what is known today as one of the state’s flagship industries. It is hard to believe in 2009, that Kentucky lawmakers have set the stage for the second-coming of the Whiskey Rebellion by introducing new taxes that could threaten the growth of this industry and upset distillers so much that rumors of distilling operations moving outside the state have been heard.

On April 1^st of this year, the booming bourbon industry was delivered a low-blow by its lawmakers when Kentuckians were required to pay an additional 6% sales tax for the first time on alcohol. The tax was passed and quickly signed by Governor Steve Beshear in an attempt to cover the state’s 454 million dollar shortfall in the budget. So what’s the big deal you ask? Local, state and federal taxes gobble up an average of 53% of what is paid for a bottle of bourbon in the Bluegrass State which was the third-highest effective tax rate in the nation BEFORE the 6% sales tax was added according to the Kentucky Distillers Association. The timing of this tax could have not come at a worse time either. When small-business owners and retailers are doing everything they can to attract consumer traffic and stay in business, lawmakers have crippled the efforts of the 3,400+ liquor retail stores and countless restaurants and hotels who rely on liquor sales to pay bills. Not to mention the negative effect this will have on the Midwest’s largest growing tourist attraction, The Bourbon Trail, by threatening the 500,000 visitors who might not choose to visit as many distilleries because of the higher prices. There is also the competitive advantage that now has been lost to our border states who used to drive from Cincinnati or Southern Indiana into Kentucky to do their shopping for alcohol. Chances are those densely populated areas will see a reversal in business as more Kentuckians will go across the river for their booze to save a few dollars during these tough times.

Why would lawmakers make such a quick decision (it took only about a month to debate and pass the tax) even though several national and local economists believe raising taxes during a recession is a counter-productive move? First, you would have to examine the hypocrisy that is Kentucky politics. Kentucky is composed of 120 counties: 30 of which are wet and 90 that are dry. Those 30 counties include the most populated areas and enjoy the majority of the residents. Even so, there is a large portion of Kentucky that is dry and the vast majority of the lawmakers from these regions voted for the tax increase. Why are there so many dry counties in one of the largest alcohol producing states in the nation? One reason is bootleggers. In every single one of those 90 counties, bootleggers operate unbothered by the law, unregulated and untaxed. In most cases, they infiltrate the political circles and ensure that any talk of a county voting wet is squashed very fast. I grew up in one of those small dry counties and was shocked to find that alcohol was harder to score as an under-age freshman in college than it was as a freshman in high school. If you don’t believe that bootleggers have political-pull, then think about the last time the local news did a story about police busting a bootlegging operation in one of those rural counties. These dry counties do nothing to generate alcohol sales tax receipts, but they are more than happy to accept the tax-money that wet counties produce.

Even though Kentucky bourbon distillers are not used to getting support from their dry counterparts, this has drawn a new line in the sand and Kentucky’s neighbors to the north have noticed. Moments after the sales tax went into law, Indiana Rep. Baron Hill wrote a letter to Brown-Foreman CEO Paul Vargas, urging him to consider expanding their operation across the Ohio River into the Hoosier State. While most industry insiders believe the employer of 1,300 workers will keep most of their jobs where they are at, Kentucky’s bourbon industry should have never been put in the position to ponder such a proposal.

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