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Legalize-It-and-Tax-It: States Considering New Excise Taxes

2 min readBy: Joseph Bishop-Henchman

In the 1790s, Congress imposed federal excise taxes on the “sin” of drinking whiskey and the luxury of owning a carriage. The whiskey 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. provoked an outcry and violence against tax collectors, resulting in President Washington federalizing the militia and the tax’s repeal in 1803. The carriage tax proved more durable, and over time other “luxuries” (telephones, cars, yacht purchases, electric suntanning) have been subject to federal and state excise taxes.

For the most part, such hefty, targeted taxes work because only a minority of people pay them; if a majority paid them they’re less likely to be enacted in the first place. (Witness Maine’s public repeal of an increase in the beer excise tax or Pittsburgh’s outrage at their poured drink tax.) Going after a less politically powerful group of people, like cigarette smokers or car renters, is more common.

There’s one big exception: imposing an 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. as part of legalizing a product. The federal alcohol excise tax came into being as Prohibition was ended, for instance. Across the country, purveyors and consumers of illegal or semi-legal products and services are pushing for legalize-it-and-tax-it.

The Wall Street Journal summarizes some developments:

More on excise taxes here.