Booze, smokes on agenda for quirky gov't group

Published on NewsOK Modified: December 8, 2012 at 9:32 am •  Published: December 8, 2012
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When the government first tried to crack down on cocaine and heroin in 1914, it did so by enacting steep taxes. For a time, marijuana also was controlled by imposing taxes so high, it was hoped, that people might lose interest.

After Prohibition was repealed in 1933, the government tried to keep a handle on the alcohol industry by writing production standards for alcohol directly into the tax code. That's where wine's alcohol content is limited to 24 percent.

The government uses taxes to control social phenomena, explains Bill Foster, who ran the bureau's headquarters before retiring this summer.

"Tobacco and alcohol are two of those commodities," Foster says.

The taxes are collected directly from producers and manufacturers, which pass those costs along to consumers. Liquor producers generally pay a flat rate of $13.50 per proof gallon — a gallon of liquid that is one-half alcohol by volume. Small cigars and cigarettes are taxed at a rate of $50.33 per 1,000 sticks.

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The current Alcohol Tobacco Tax and Trade Bureau was split from the Bureau of Alcohol, Tobacco and Firearms in 2003. ATF was moved to the Justice Department, where it focuses on firearms, explosives and violent crime.

Officials who regulate and tax alcohol and tobacco remained at Treasury, where they continue to ensure that wine doesn't contain pesticides and absinthe is free of thujone, the psychoactive ingredient — now banned — that gave it its hallucinogenic reputation.

That's how Dr. Abdul Mabud found himself overseeing 26 chemists at a lab in Beltsville, Md., that tests hundreds of bottles, cigarettes and perfumes every year.

One afternoon, Mabud holds aloft a jar of pure, clear alcohol containing a coiled king cobra, its hood flared and forked tongue extended. Surrounding it are smaller green snakes that appear to be biting each other's tails.

The snake liquor was submitted for consideration as an import from east Asia, where snakes are believed to increase virility.

"With that much snake in there, it's probably not a beverage," Mabud says, explaining why the shelves of America's liquor stores and supermarkets are free of giant, gin-soaked snakes.

Mabud traces his lab's history to 1886, when Congress passed steep taxes on margarine — at the time, an upstart competitor to the nation's dairy products. The 1886 law aimed to prevent crooked margarine-pushers from selling their product as butter. Treasury's first food-quality lab was set up to preserve butter's integrity.

Today, the bureau owns some of the most sophisticated equipment available, including the smoking machine, which can be set to inhale in at least three ways, depending on how long and hard the smoker being simulated prefers to puff: light, medium and Canadian. The last one is when the perforations around the cigarette's filter are blocked and the machine takes bigger, more frequent puffs. It was invented by the Canadian government, and does not necessarily reflect the actual smoking habits of Canadians, says Dawit Bezabeh, chief of the bureau's tobacco lab.

"That's the worst-case scenario," he says.

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Officials are less chatty about a third agency priority: The diplomatically sensitive work of promoting the international alcohol and tobacco trade.

The bureau helps strike deals with other countries that have liquor industries, like the one with Peru and Chile over Pisco. The idea is to protect U.S. alcohol and tobacco producers from unfair competition. Jim Beam's prices might be easily undercut, for example, if an overseas firm was allowed to label something as bourbon even though it was aged in a cask that is neither charred nor oak nor new.

That's how the Tequila Working Group was born. Citing safety concerns, Mexico had threatened to stop exporting bulk tequila — a commodity that supports 500 U.S. bottling jobs. After the bureau agreed in 2006 to regular meetings with Mexico's tequila industry, Mexico backed down. The jobs were saved.

Until the early 2000s, the U.S. negotiated wine-making standards as part of a European wine trade group. As the American wine industry blossomed, officials began to believe that the group was favoring European wineries, for example, by refusing to endorse American agricultural methods. Every member of the group had veto power, and France was willing to use it.

The U.S. escaped Europe's dominance by joining with other oenological up-and-comers like Australia, Argentina, Canada, Chile, New Zealand and South Africa to form the World Wine Trade Group. The group encourages countries to accept each other's wine-making methods.

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Its complicated history helps explain why the bureau looks and acts different from most government offices. As a tax-collecting agency, it wants to see its industries thrive. As a consumer-protection outfit tasked with keeping antifreeze-spiked wine off the market, the bureau must rein in dangerous, sloppy practices by industry members.

If other government agencies ran that way, the Consumer Product Safety Commission would be promoting U.S. baby crib makers at the same time it evaluated their products as potential death traps.

"There's some peril with that kind of approach," says Jeff Bumgarner, a professor of criminal justice at the University of Minnesota who studies the history of federal law enforcement. "The trade part of your mission is one of support and standing up the industries, and the tax collection part and the regulatory part and the compliance part is one of holding those industries in check."

That basic conflict leaves the U.S. government with an alcohol regulator that recently hosted industry executives at conferences to educate them about the bureau's rules and encourage "voluntary compliance," then months later raided a Native American reservation that was suspected of harboring cigarette tax evaders.

Critics say the bureau's close relationship with industry makes it less likely to take a hard line against violators.

Foster sees it another way. He says agents and officials like him are more effective overseers of the industry because they started out working on the distillery floor, measuring batches of liquor and handing producers their tax bills.

"It gave us all a significant understanding of how the industry operates and what their challenges were," he says.

Agency officials say they are making the most of limited resources, and doing better than most federal departments. And their workload is increasing steadily. The alcohol and tobacco bureau is responsible, for example, for approving every label to be used on an alcohol product in the U.S. As the number of microbrewers and microdistilleries explodes, the work of reviewing those labels is becoming a heavier lift.

The bureau now regulates more than 56,000 companies, an increase of 27 percent since 2007. In that time, its core budget rose only 8 percent.

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Like any government office, the agency has had its share of hiccups. Agawam grapes were known on U.S. wine labels as Agwam grapes until the bureau corrected its spelling error in rules published last year.

Vintners with leftover Agwam labels were given until October to stop using them.

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Daniel Wagner can be reached at www.twitter.com/wagnerreports.

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