Excise Taxes

Overview:  In FY 2018, excise taxes raised an estimated $95 billion in revenues, about 3% of total Federal revenues.

  • Consumption Taxes: Excise taxes are a form of “consumption tax,” that is, they are imposed on the consumption of specific goods and services, rather than on income.
  • Excise vs. Sales taxes:  Unlike sales taxes, which are generally imposed on broad categories, Federal excise taxes apply to specific commodities.  Sales taxes have historically been left to the States as a revenue source.
  • Applied per unit rather than tied to sales price:  Another difference between sales and excise taxes, is that excise taxes are imposed per unit of a product (e.g., a pack of cigarettes), rather than as a percentage of the price.
  • Federal excise taxes are imposed on a variety of products and services:
    1. Gasoline (The gasoline excise tax is currently 18.4 cents per gallon, of which 15.44 cents is dedicated to highways, 2.86 cents is dedicated to mass transit, and 0.1 cent goes to the Leaking Underground Storage Tank Trust Fund – background report)
    2. Diesel fuel (background report);
    3. Domestic air passengers – current aviation excise tax structure;
    4. Highway tractors, trailers, trucks, and tires (background);
    5. Beer, Wine, Distilled Spirits (tax rates);
    6. Tobacco products (tax rates);
    7. Telephone excise tax (background);
    8. Coal (background – coal excise tax and black lung);
    9. Firearms and ammunition (background);
    10. Medical Devices (background and the current moratorium);
    11. “Cadillac Tax” High-Cost Employer-Sponsored Health Plans (background; on 1/22/18 a short-term funding measure (CR) delayed the effective date from 2020 to 2022);
    12. Health Insurance Providers Fee (suspended for calendar year 2019)
  • Point of Collection:  The collection point of the tax varies across products. For some goods, taxes are collected at the production level, such as the gas tax. Other excise taxes are collected on retail sales.
  • Revenues usually fund specific activities:  Most Federal excise taxes are deposited into special “trust funds” dedicated to specific federal activities. For example, the Federal excise taxes on gasoline, diesel fuel, and heavy tires go into the Highway Trust Fund, which is dedicated to highway construction and maintenance, and mass transit. However, other excise taxes were imposed purely to raise revenues, such as telephone excise taxes and alcohol taxes.
  • Certain Excise Taxes Aimed at Influencing Behavior: Some excise taxes—in addition to raising revenue—are also imposed to influence behavior, such as the Federal excise taxes on tobacco which, in addition to raising funds for anti-tobacco programs, discourage smoking.  In recent years, imposing carbon taxes have been widely debated as a means of reducing the consumption of fossil fuels to slow global warming.  (CRS: Attaching a Price to Greenhouse Gas Emissions with a Carbon Tax or Emissions Fee)
  • Regressive v. Progressive:  Unlike income taxes, which are generally viewed as “progressive” (i.e., imposing higher rates on higher increments of income), excise taxes on consumer products are often argued to be “regressive” because they are passed on to consumers as higher prices that consume a higher proportion of income for lower-income people than for those with higher incomes.
  • Fairness Issues: Because excise taxes are selectively imposed on certain commodities, they also tend to raise issues of “fairness.” For example, the commercial truck transportation industry argues that while heavy tires are taxed, no similar excise taxes are imposed on shipping competitors such as railroads and waterways.

Nonpartisan Reports