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

May 17, 2010

In the 1790s, Congress imposed federal excise taxes on the “sin” of drinking whiskey and the luxury of owning a carriage. The whiskey tax 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 tax 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:

  • Ohio is adding video lottery machines to racetracks after residents voted to approve new casinos; other states expanding gambling or considering it include California, Colorado, Florida, Illinois, Iowa, Kentucky, Maine, Massachusetts, Minnesota, Missouri, and New Jersey.
  • Arkansas, Colorado, South Dakota, Virginia, and Washington are easing restrictions on Sunday sales of liquor.
  • Alabama, California, Delaware, D.C., Illinois, Massachusetts, Missouri, New Hampshire, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and Tennessee are considering easing restrictions on marijuana. California voters will face the issue in November.
  • Detroit cancelled efforts to shut down erotic businesses in part because of the negative fiscal and job impacts.

More on excise taxes here.

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