Buried deep in the tax code is a program that allows liquor producers to lower their effective tax rate by making liquor with wine and flavorings. As is often the case with tax carveouts, Internal Revenue Code (IRC) 5010 benefits special interests—in this case, big liquor companies—while costing taxpayers billions.

IRC 5010 gives large liquor companies an excise tax reduction for adding wine and flavorings to their products. Though it is rarely clear to consumers, a bottle of liquor they see on the shelf may actually be up to 49% wine. Unsurprisingly, the U.S. Department of Treasury and other non-partisan government experts have noted that…

The 5010 tax credit encourages liquor companies to sell lower quality products—but with little requirement for disclosure.

IRC 5010 also gives foreign liquor producers an advantage over American companies. While domestic manufacturers are subject to government oversight and regulatory scrutiny, foreign competitors are able to avoid accountability because Treasury Department inspectors do not have access to their production facilities.

Put simply? Repealing the IRC 5010 tax loophole would simplify the tax code, protect consumers, and save billions in taxpayer money.

The Progressive Policy Institute included IRC Section 5010 in its article, “Five Tax Loopholes that Congress Should Close.”