June 1, 1956

Federal Excise Taxes

TF Staff

TF Staff

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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.

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The Proper Role of Excise Taxes

The Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S.

The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others.

A 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.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

An 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.