Section 5010 of the tax code gives foreign liquor producers an unfair tax advantage while leaving American taxpayers and distillers to pick up the tab.
By Jack Barcroft
Over the years, I had the privilege of leading several grassroots organizations including Chair of the Coryell County Republican Party as well as President of the Economic Development Board through some of the fastest growth Central Texas has ever seen. Core to the promise of conservatism is fair treatment of American citizens and businesses under the law. Right now, that promise is being broken by an obscure, decades-old provision buried in the federal tax code called Section 5010, better known as the Foreign Liquor Loophole.
Did you know, distillers who sell hard liquor in America typically pay a standard federal excise tax of $13.50 per proof gallon. But since 1980, the tax code has carved out a break for producers who blend their spirits with high-proof “wine,” often made from something like fermented orange juice byproducts rather than grapes, or with alcoholic “flavorings.”
Half of what’s in that bottle, by law, can be something other than distilled spirits without a word of it appearing on the label, yet the finished product is sold, taxed, and marketed as though it were straight liquor.
The nickname is well-earned for two specific reasons.
First, the Treasury Department’s own alcohol regulator, the Alcohol and Tobacco Tax and Trade Bureau, can walk into an American distillery and verify exactly what’s being blended into a product. It has no legal authority to do the same at a facility overseas.
Second, the Treasury Department acknowledged that other countries’ rules on wine and flavoring additives are often looser than our own, which can make this tax credit even more lucrative for foreign producers once those products cross the border into the U.S. market.
Many of the multinational conglomerates cashing in on this loophole are simultaneously lobbying against President Trump’s America First trade agenda, pushing for zero tariffs on the liquor they produce in Europe and elsewhere. This is an affront to the domestic distillers who use traditional recipes free of these so-called “flavorings.”
By government estimates, the Foreign Liquor Loophole will cost American taxpayers $219 million this year alone, and $2.5 billion over the next ten years. Federal regulators haven’t taken a hard look at this program since 1993, more than three decades ago, leaving open real questions about what’s actually going into these bottles.
It’s well past time we conducted a thorough audit of whether harmful dyes or other additives are being added to these products.
President Trump has made ending special treatment for foreign free-riders a hallmark of his second term, from renegotiating trade agreements to demanding fairness for American workers and businesses. Closing the Foreign Liquor Loophole fits squarely within that mission.
That’s why I urge Congress to repeal Section 5010 and restore a modicum of fairness to the system.
Texans who believe our tax code ought to treat American producers fairly should expect nothing less from Washington.
Jack Barcroft is the former Coryell County Chairman, past president of the Texas Republican County Chairman’s Association, and previously served on the State Republican Executive Committee as well as President of the Coryell County Economic Development Board and President of the Gatesville Chamber of Commerce between 2011-2021.
