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Liquor Taxes Could Go Up 400%, Thanks to Congressional Dysfunction

The last two years have been good ones for Lyon Distilling. At the small rum producer in St. Michaels, Maryland, a town on the Eastern Shore of Chesapeake Bay, production has jumped from 4,000 bottles a year to 40,000. Four employees have become 15.

Explosive consumer demand explains some of that growth, said Jaime Windon, the company’s chief executive and co-founder. But she attributes most of it to a steep cut in federal excise taxes on alcoholic beverages, which Congress passed at the end of 2017 as part of the Tax Cuts and Jobs Act.

“We used to be tiny,” she said. “Now we’re running like a machine.”

Thousands of small distilleries, breweries and wineries have similar stories. But their fortune may end soon, thanks to congressional paralysis: The tax cut, known as the Craft Beverage Modernization and Tax Reform Act, is set to expire on Dec. 31, and legislators have until Friday to extend it.

If they don’t, distilleries like Lyon will face a 400% tax increase, with the first payment for many due on Jan. 15. That has craft-beverage producers scrambling.

“The anxiety level with these small distilleries is high,” said Chris Swonger, chief executive of the Distilled Spirits Council of the United States. Industry representatives expect that many small companies will have to lay off employees or close entirely, a turn that could undermine the country’s boom in craft brewing and distilling.