Excise Taxes

Introduction

Excise taxes are imposed on specific types or categories of goods, unlike broad-based consumption taxes, such as sales taxes and value-added taxes. A century ago, almost half of all federal revenue came from excise taxes on products such as distilled spirits and tobacco; customs duties on imported goods also played a larger role in early US history compared to today.

Today, excise taxes account for only two percent of federal revenue. In 2024, the gasoline tax was the largest ($26 billion), followed by air travel ($13 billion), alcohol ($11 billion), and tobacco ($9 billion). Similarly, customs duties have consistently comprised two percent or less of federal revenue in recent decades, though new tariffs introduced in 2025 caused a spike from $77 billion in 2024 to $195 billion in 2025 (but much of that is due to be refunded after certain tariffs were ruled illegal).

Excise taxes fall into two categories: a user-pays model, where taxes fund a related program (such as gasoline and truck taxes dedicated to the Highway Trust Fund), or a tax on socially harmful activity. The latter can be justified when an activity imposes costs on others not reflected in the market price, though such costs are difficult to measure and translate into an optimal tax rate. The more successful these taxes are at discouraging behavior, the less revenue they raise. Tariffs lack both justifications and instead are aimed at reducing foreign competition and raising revenue.

Economically, excise taxes and tariffs primarily burden labor. They create a wedge between the prices consumers pay and the prices producers receive, reducing income available to compensate workers and business owners, without directly affecting the after-tax return on new investment. Consider an individual who earns $1 after tax: they can consume it today or save it and earn a 5 percent return, purchasing $1.05 in goods next year. An excise tax does not change this trade-off. As a result, the burden falls primarily on labor income, reducing real after-tax wages, hours worked, and output. The exception is when taxes apply to capital goods or inputs, which can also affect investment.

This chapter considers several excise tax and tariff options. For excise taxes, we consider changes to areas where the US already has federal excise taxes, such as transportation, as well as the possibility of a tax on greenhouse gas emissions. We also look at several major tariff proposals.

← Back

About the Authors

Erica York Tax Foundation
Expert

Erica York

Vice President of Federal Tax Policy

Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.

Garrett Watson Tax Foundation
Expert

Garrett Watson

Director of Policy Analysis

Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.

Huaqun Li Tax Foundation
Expert

Huaqun Li

Senior Economist, Director of Modeling Projects

Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.

William McBride or Will McBride Tax Foundation
Expert

William McBride

Chief Economist & Stephen J. Entin Fellow in Economics

Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.

Alex Durante Tax Foundation
Expert

Alex Durante

Senior Economist

Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.

Alex Muresianu Tax Foundation
Expert

Alex Muresianu

Senior Policy Analyst

Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.

Peter Van Ness Tax Foundation

Peter Van Ness

Research Software Developer

Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.

Aleksei Shilov Tax Foundation Research Software Developer

Aleksei Shilov

Research Software Developer

Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.

Daniel Bunn Tax Foundation President & CEO
Expert

Daniel Bunn

President and CEO

Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.