Liquor wholesalers’ appalling misuse of the Constitution

Angela Logomasini Competitive Enterprise Institute
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Liquor wholesalers’ attempts to rationalize federal alcohol legislation would appall James Madison, the father of the Constitution. Wholesalers claim their legislation will protect “states’ rights.” But their proposal would only serve their narrow special interest at the expense of individual freedom and prosperity — exactly the opposite of what the framers of the Constitution intended.

The National Beer Wholesalers Association — with the support of the Wine and Spirits Wholesalers of America — drafted this bill, which they plan to get members to introduce in the House and Senate this week or next. The timing precedes the NBWA annual legislative conference (March 27-30), during which their members will descend on Capitol Hill for annual lobbying visits. The wholesalers drafted and Rep. William Delahunt (D-Mass., retired) introduced a similar bill last year, which garnered more than 150 sponsors.

Unfortunately, many members have naively bought the wholesalers’ arguments that the bill protects states’ rights: “I want to preserve states’ rights to decide the appropriate regulation of alcohol within their borders,” Rep. Jason Chaffetz (R-UT) said in a press release last year about the legislation.

In reality, the aim of the bill is to protect anti-competitive state laws that support a three-tier system for alcohol distribution. Many states impose such “three-tier laws,” which generally require that alcohol producers sell only to wholesalers who then sell to retailers. Some states include exemptions for sales to consumers during winery visits, and some now allow direct–to-consumer shipping. About a dozen states don’t allow consumers to mail-order wine at all.

This is a nice setup if you are the wholesaler — i.e., a middleman — who gets a government-guaranteed right to profit from every liquor sale. But these laws are unfair to everyone else — consumers, producers, and retailers — who might benefit from different arrangements.

During the past decade, the wholesalers’ three-tier hegemony began to break as consumers increasingly attempted to mail-order wine from wineries in other states. Some state lawmakers — working at the behest of the wholesale lobby — banned out-of-state wine from being shipped directly into their states, while allowing their own wineries to ship out.

In the 2005 Granholm v Heald case, the Supreme Court ruled that such discriminatory laws violate the Constitution’s Commerce Clause, which grants Congress the power “to regulate commerce . . . among the several states.” Madison argued in favor of this enumerated federal power to facilitate the unfettered exchange of goods and services across state lines — a freedom critical to the nation’s prosperity.

At the time, conflicts between the states — then joined in a relatively loose alliance under the Articles of Confederation — jeopardized both freedom and security. The goal was to form a stronger, more stable union, in which individuals could prosper from both liberty and security. The only issue remaining was the extent of federal power vis-à-vis the states.

Madison explained in Federalist 45 that the powers reserved for the states would remain “numerous,” and enumerated federal powers would be “few and defined.” The commerce power — as embodied in the federal Commerce Clause — is among the few enumerated federal powers, but Madison did not think this one was all that controversial. He further commented: “The regulation of Commerce, it is true, is a new power; but that seems to be an addition which few oppose and from which no apprehensions are entertained.”

A federal law granting states the power to impede alcohol trade upsets this balance of power and runs contrary to basic constitutional principles. Still, wholesalers maintain that alcohol trade is somehow different because it is the subject of two constitutional amendments: The 18th Amendment, which imposed alcohol prohibition, and the 21stAmendment, which repealed it.

The 21st Amendment also states: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” This provision simply affirmed the authorities that states possessed before prohibition; it did not grant them new powers to pass unconstitutional laws.

Wholesalers would like lawmakers to believe otherwise. “Our perspective is that the 21st amendment gave states the authority to create alcohol policy, largely unfettered, by the courts,” Craig Wolf, the president of the Wine and Spirits Wholesalers, said in an interview with VinTank in January.

However, the Supreme Court ruled in Granholm that, “the Twenty-first Amendment does not supersede other provisions of the Constitution.” This reality is exactly why wholesalers are back at the federal trough. They want the federal government to delegate its commerce power to states — validating state laws that serve wholesalers and trample the freedoms of everyone else.

The wholesalers’ use of constitutional arguments is particularly ironic because Madison specifically designed the Constitution to ward off such special-interest politics. In Federalist Number 10, Madison explained that “the principle task” of government is to control “factions” — i.e., special interest groups.

Accordingly, Madison and the other framers advocated a form of government that would balance powers and employ checks and balances to limit opportunities for overbearing special interests to undermine liberty. The federal commerce power — which wholesalers want to overcome — is one of the many checks in the system.

It’s not surprising that wholesalers seek to protect their quasi-monopoly, even at the expense of liberty and prosperity. But the idea that anyone would sign on in the name of constitutional principles is pure folly.

Angela Logomasini, Ph.D. in American Government, is a senior fellow at the Competitive Enterprise Institute.