Fault Lines
20 August 2017

Taxes And Regulations Bring Bootlegging Back From The Dead

January 24, 2017 (Fault Lines) – Taxes are the scourge of our existence. They are so hated they are often mentioned in the same breath as death. Most people will do anything to avoid them. But the fine line between tax evasion and and tax avoidance looks kind of like the door to a prison cell.

The oldest, and most romantic, form of tax evasion is bootlegging. From the rumrunners lurking off the coast of Cape Cod to moonshine smugglers running hot rods down mountain roads, there is just something about liquor bootlegging. Prohibition started the practice, but avoiding liquor taxes kept it alive. At least until it became more risk than it was worth.

If you live anywhere that’s not a big city, you probably know a place out in the woods where you can buy some moonshine. It’s an entertaining way to break the monotony of small batch bourbon and craft beer. But it really only has some value as a novelty. You can actually buy moonshine at the liquor store now, though that takes a lot of the fun out of the experience.

There is little doubt bootlegging is past its heyday. Or maybe not. According to Reason, it’s back. Burdensome taxes and regulations have put the profit back into smuggling liquor.

Illinois started 2017 on a serious note, making the illegal importation of more than 45 liters of liquor, 108 liters of wine, or 188 liters of beer a felony offense. And because no criminal law is really complete without a mandatory minimum, you get at least a year in jail for sneaking a few of kegs into the state.

Is this really that big of a problem? Yes, in a “three-tier” alcohol distribution system. At least it’s a problem for the monopoly holders who benefit from the system. Rather than a producer selling directly to the consumer, this system requires a middleman to distribute alcohol. And that keeps you from drinking too much…

The original intent of the three-tiered system was to provide temperance, ensure orderly market conditions, and raise revenue (taxes).

The system increases the price of alcohol (since there is a middleman).  In theory, the higher prices discourage over-indulgence, and forces temperance on the society.

Sounds great. Not only do they claim this system controls the boozehounds, it cuts out corruption. A little brewery can now compete with the big guys based on the three-tier system. Watch how it works:

Powerful distributors determine which beers make it to the shelves.  For example, Bell’s Brewery in Michigan gave up trying to penetrate the Chicago market and pulled out of Illinois completely.

A small brewery has almost no chance of reaching the Chicago market.  In fact, while craft breweries flourish across America, very few craft breweries exist in Chicago.  They just can’t get their beer to market.  Two Brothers, founded by Jim and Jason Ebel, split their efforts to save their brewery.  Jim kept the brewery and Jason formed Windy City Distribution to distribute the beer.  Even then it took many years for any retailer to take them seriously.

Well, maybe that was a bad example.

But surely the mandatory minimum prison sentence is serving a valuable purpose, rather than using the power of the prosecutor to protect corrupt distributors.

“It’s a very stiff penalty, because if you do have a felony, you cannot legally hold a liquor license. So, if a retailer is shipping it from another state or a retailer in Illinois gets caught doing that, he or she could potentially lose their privilege to do business in Illinois,” said [G&M Distributors President Adam] Vitale.

Apparently, all of this regulation is there to help the people. It keeps you from drinking too much. In fact, this law is specifically designed to make your life better, from education to driving to keeping an eye on your family for you.

“Many out-of-state businesses are not compliant with Illinois tax laws, which undercuts Illinois businesses, depriving our state of money that could be going toward improving our schools, roads and social services,” said Karin Lijana Matura, executive director of [Wine and Spirits Distributors of Illinois].

Be afraid. We all know what the nine most terrifying words in the English language are. Take a wild guess what all of this regulation is really accomplishing? Screwing the consumer, of course. There was a reason Illinois residents went to Indiana for their booze.

The legislation came in response to a thriving illegal cross-border trade as Illinois residents place orders with businesses—many in Indiana—for liquor, wine, and beer unavailable or just extremely pricey through their state’s tightly regulated and protected cartel.

How pricey does liquor need to be for you to go to the next state to get it?

“Alcohol is much more expensive in Illinois than it is in Indiana,” reported a Chicago ABC affiliate in 2015. “And it is even pricier in Cook County, where the tax rate on liquor is more than five times higher than it is in the Hoosier state.” The result is that “a six-bottle case of vodka that costs $167 in Indiana costs $226 in Illinois and is $18 more than that in Cook County.”

A case of vodka in Chicago is almost $80 more expensive than it is over in Indiana. That’s enough of a price difference to make you reconsider that Ketel One for a case of Popov. Now that should be a crime.

America loves to overregulate things. For all our cries about the land of the free, society spends an incredible amount of time trying to take away as many choices as possible. The only thing we love more than a regulation is a law. And criminal laws are the best. Mandatory minimums and felonies, because jail just seems to go better with lifelong collateral consequences.

Illinois is offering the best of both worlds. They haven’t just regulated the market into a soulless monopoly, where a Chicagoan can’t even get a delicious Two-Hearted Ale. They have also criminalized competition so there is not a damn thing you can do about it, other than find your way over to Copperhead Road.

Is the result that the distributors get to keep their stranglehold on the market? Are the people going to get their roads fixed? Will the children get to learn math?

Nope. They just brought back the art of bootlegging. Maybe we should raise a toast to that.

3 Comments on this post.

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  • Richard G. Kopf
    24 January 2017 at 10:53 am - Reply

    Josh,

    This is a truly fascinating post. But, I think you have missed one essential point regarding the use of the criminal law to regulate the sale of alcohol. In the public interest, the distribution, sale or consumption of craft beers* by Neo-Yuppies warrants the death penalty.

    All the best.

    RGK

    I have in mind such beers as:

    Angry Goatface Hopfuck IPA,
    Basically Soda Raspberry Lambic,
    Steel Cabin “Not Bud” Lager,
    Maverick “Hoppier Than Hopfuck” Imperial IPA,
    Tin Gorilla Mocha Pumpernickel Molasses Stout,
    Barton Bros Something Weird Like Oh I Don’t Know Fish Heads Ale,
    Granite Face Pumptoberfest Winter Spice Blackberry Sprummer Wheat Seasonal Ale, Spotted Frog Crazy High Alcohol Barleywine,
    Schrumpf Banana and Coriander Belgian Tripel,
    and, of course,
    Maverick Oh No We’ve Gone Too Far What Have We Done Continuously Hopped Disaster.

    H/t The Complete Guide to the Craft Beer at Your Local Bar, http://www.collegehumor.com/post/6921709/the-complete-guide-to-the-craft-beer-at-your-local-bar

  • Fault Lines Friday Fail
    27 January 2017 at 3:00 pm - Reply

    […] Sneaking beer kegs into Illinois is now a felony. […]