On March 19, Secretary of the Interior David Bernhardt announced that the U.S. Fish and Wildlife Service will distribute almost $1 billion to state and territorial fish and wildlife agencies to fund conservation and recreation projects. These funds have been raised through a rather well-designed excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. levied on firearms as well as hunting and fishing equipment. The specific figures for the states can be seen in the table at the end of this piece.
The excise taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on firearms was established under the National Firearms Act in 1937, though archery items were not added as taxable items until 1972. Pistols and revolvers are taxed at 10 percent of value; ammunition and other firearms are taxed at 11 percent of value; and archery items are taxed at 11 percent (except shafts, which are taxed at 39 cents per shaft). The tax is collected at manufacturer or importer level. The allocation of the receipts is regulated by the Pittman-Robertson Act.
The excise tax on fishing gear was established by the Dingell–Johnson Act in 1950. The rate is 10 percent of value and is also collected at manufacturer level. While a specific flat rate excise tax would improve the design, the rates are low enough to avoid interfering with consumer choice.
Combined, the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. covers everything from arrow shafts to bullets to fish tackles. The revenue from this tax is collected by the federal government, allocated to the Wildlife Restoration Fund and Sportfish Restoration Fund, and apportioned to conservation programs in all 50 states based on land area and hunting and fishing licenses. Recreational boaters also pay into the fund through fuel taxes on motorboats and small engines. By design the tax works as a user feeA user fee is a charge imposed by the government for the primary purpose of covering the cost of providing a service, directly raising funds from the people who benefit from the particular public good or service being provided. A user fee is not a tax, though some taxes may be labeled as user fees or closely resemble them. for hunters and fishers, where purchase of equipment acts as a proxy for the buyer’s consumption of recreational outdoor activities. In addition to the federal tax, states often sell licenses to support wildlife management and conservation.
Because it respects the benefit principle so well, the tax enjoys general support among America’s sporting and outdoor community. The excise tax on hunting and fishing equipment can teach us some lessons about well-designed excise taxes.
While some may consider a well-designed excise tax an oxymoron, excise taxes can be an effective tax tool. A guiding principle is that excise taxes should only be levied when appropriate to capture some externalityAn externality, in economics terms, is a side effect or consequence of an activity that is not reflected in the cost of that activity, and not primarily borne by those directly involved in said activity. Externalities can be caused by either production or consumption of a good or service and can be positive or negative. or to create a “user pays” system—not as a general revenue measure. Due to their narrow base, they are not a sustainable source of revenue for general spending priorities.
Unfortunately, not all excise taxes are well-designed with respect to the benefit principle or principles of sound tax policy. For instance, some states tax car rentals to fund projects like stadium construction and amateur sports. Colorado taxes sports betting to fund water conservation. Philadelphia taxes soda to fund educational programs.
Instead, revenue from excise taxes should be appropriated to relevant spending priorities, as in hunting and fishing examples above. Further, excise taxes should be designed according to the principles of sound tax policies, which means they should have neutral equitable rates, clear definitions, and simple collections.
Excise taxes are generally levied on specific products or services such as alcohol, gasoline, and marijuana. They are often imposed to internalize negative externalities associated with use of certain goods or services, to disincentivize consumption of the taxed good or service, or, as in the example above, as a user fee. An externality, in economics terms, is the side effect or consequence of an activity that is not reflected in the cost of said activity.
An example of a tax internalizing externalities is an excise tax on gambling that funds gambling addiction prevention. Gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. es are an example of a tax as a user fee, where the purchase of fuel acts as a proxy for road usage—the more gas you purchase, the more you drive on the roads. (They also address externalities by putting a price on drivers’ contributions to traffic congestion and pollution.) Taxes designed to disincentive consumption are often called sin taxes, such as those levied on tobacco, marijuana, and alcohol. Of course, a single excise tax can support more than one of these strategies.
Here are the figures for how excise tax revenue from hunting and fishing gear is apportioned to states to help fund conservation efforts:
|State||Total Amount of Grants Issued|
|District of Columbia||$1,232,417|
Source: U.S. Department of the Interior, “Sportsmen and Sportswomen Generate Nearly $1 Billion in Conservation Funding,” https://www.doi.gov/pressreleases/sportsmen-and-sportswomen-generate-nearly-1-billion-conservation-funding.
Note: U.S. territories also receive funding, which is not reflected in the table above.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.Subscribe