Excise taxes are imposed on the purchase of goods and services. In the United States, these are often called gasoline taxes and income taxes. While these are not actually called “excise taxes”, they are levied on the quantity of a particular item. Products that emit greenhouse gases, such as tobacco, are subject to excise taxes. In the U.S., excise tax revenues are used for government programs that reduce pollution, and in some states, these tax revenues are used for other purposes as well.
The tax revenue generated from excise taxes is primarily used to fund public services. While the federal government relies heavily on excise taxes for funding, state governments rely on these taxes for most of their revenue. In 1991, federal excises totaled $42 billion, not including customs duties. They represented 16.2 percent of state tax revenues. Local governments collected an additional $10 billion through excise taxes, which made up 4.5 percent of their own-source tax revenues.
Various rationales justify the collection of excise taxes. The ease of administration is one reason, and many products are subject to excise taxes. In addition to being easier to administer than other types of taxes, they also tend to affect equity and progressivity. The use of these taxes is beneficial for some countries, but it is not always advisable. Generally speaking, excise taxes are more effective in developing countries than in developing countries.
The goal of excise taxes is to raise revenue by discouraging people from consuming particular items and behaviors. Alcohol and tobacco taxes, for example, are justified on both grounds. But some economists argue that optimally raising revenue from these taxes should be based on the elastic demand of the goods and services. Most items on excise tax lists, like cigarettes, are long-term inelastic, and therefore higher-income people will pay more in terms of additional costs.
Excise taxes are paid on many goods and services. In the United States, the federal excise tax on a pack of cigarettes is $1.01, but states have their own excise taxes. Connecticut has the highest excise tax on cigarettes, bringing the total to $4.35 per pack. This is in addition to the federal tax, which is already higher than the state’s. If a company is liable for taxes on goods, it is also liable for the state’s own source of taxes.
In the United States, excise taxes are applied to various products. The primary sectors affected by these taxes are energy, aviation, transportation, and industrial manufacturing. Some types of products may be subject to excise taxes. Other sectors that may be taxed include certain consumer goods, certain kinds of food and beverages, and some types of life science. The CARES Act enacted in 2016 provides a one-year exemption from federal and state excise taxes on air travel, airplane fuel, and automobiles.