June 1, 1956

Federal Excise Taxes

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Project Note No. 40

Executive Summary
The purpose of this study is to find a logical, permanent basis for Federal excise taxation. As will be shown in Chapter 11, the present system of Federal excises is to a large extent a result of various pressures on Congress, particularly of the emergency needs for revenue during the 1930’s, World War II, and the Korean War. Because they have been rather haphazardly selected, present excises involve discrimination among taxpayers and undesirable effects on economic activity.

To find a new basis for excise taxation requires first an examination of what has been done in the past, and second, an analysis of the proper role of excises in the Federal tax system. Chapter II contains an historical sketch of excise taxes from 1791 to the present. Chapter III contains an analysis of the various issues and considerations involved in excise tax policy; it is concluded that excises should play a more important role in the Federal tax system. In Chapter IV the characteristics of the present excise tax system are examined in some detail and its weaknesses are set out. In Chapter V the alternatives of an extension of the selective excise tax system vs. adoption of a general sales or excise tax are considered; three forms of the latter are compared—a retail sales tax, a manufacturers’ excise tax, and a value added tax.

Since this is a study of tax policy, little attention is given to technical and administrative problems. These problems have recently been studied in detail by a subcommittee of the House Ways and Means Committee. The subcommittee’s report contains recommendations for extensive technical changes in various excise taxes and in administrative and collection procedures.