Excise tax in the United States

Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state, and local governments and are not uniform throughout the United States. Certain goods, such as gasoline, diesel fuel, alcohol, and tobacco products, are taxed by multiple governments simultaneously.For example, a pack of 20 cigarettes bought in New York City would include the federal excise tax of $1.01, the New York State excise tax of $4.35, and the City excise tax of $1.50. For New York state and city tax rates, see New York State Department of Taxation and Finance, "Cigarette and Tobacco Products Tax,"https://www.tax.ny.gov/bus/cig/cigidx.htm, retrieved December 18, 2021. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such, often remain "hidden" in the price of a product or service rather than being listed separately.

Federal excise taxes and revenues

Federal excise taxes raised $86.8 billion in fiscal year 2020 or 2.5% of total federal tax revenue. These data come from Tables 2.1 through 2.4.

Fuel

Federal excise taxes have been stable at 18.4¢ per gallon for gasoline and 24.4¢ per gallon for diesel fuel since 1993. This raised $37.4 billion in fiscal year 2015. These fuel taxes raised 90% of the Highway Trust Fund. The average of state taxes on fuel was 31.02¢ per gallon for gasoline and 32.66¢ per gallon for diesel fuel in 2021. However, most states exempt gasoline from general sales taxes. The total state and federal taxes are relatively low compared to other industrialized countries, already without consideration of the sales tax rebate.

Airport & airway trust fund Excise taxes dedicated to the Airport and Airway Trust Fund raised $9.0 billion in fiscal year 2020, down from $16.0 billion in fiscal year 2019. 90% of the excise tax revenue comes from taxing passenger air fares, and the remaining 10% comes from air cargo and aviation fuel taxes.

Affordable Care Act excise taxes Excise taxes for the Affordable Care Act (ACA) raised $16.3 billion in fiscal year 2015. $11.3 billion was an excise tax placed directly on health insurers based on their market share. The ACA was going to impose a 40% "Cadillac tax" on expensive Employer-sponsored health insurance, but that was postponed until 2018, and later further postponed and eventually repealed before its rollout on December 20, 2019. Annual excise taxes totaling $3 billion were levied on importers and manufacturers of prescription drugs. An excise tax of 2.32% on medical devices and a 10% excise tax on indoor tanning services are applied as well. The same budget bill that repealed the Cadillac tax also repealed the medical device tax for all sales occurring after December 31.

Tobacco Excise taxes on tobacco raised $12.4 billion in fiscal year 2020. The tax equals $1.01 per pack of 20 of cigarettes. Federal excise tax revenue from tobacco products peaked in fiscal year 2010 at $17.2 billion after the increase in tobacco product tax rates in the Children's Health Insurance Program Reauthorization Act of 2009. This tax increase, which took effect in April 2009, was the most recent time federal tobacco tax rates were changed. The federal tobacco product excise tax does not apply to certain products, including electronic cigarettes.

Alcohol Excise taxes on alcoholic beverages raised $9.5 billion in fiscal year 2020.

Cannabis In 2020, state and local governments earned over $3 billion in tax revenue from cannabis taxes.

Constitutional law

The U.S. Constitution, ratified in 1789, gave the federal government authority to tax, stating that Congress has the power to ... lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States;

Tariffs between states are prohibited by the U.S. Constitution, and all domestically made products can be imported or shipped to another state tax-free. In the U.S. constitutional law sense, an excise tax is usually an event tax (as opposed to a state of being tax).Also, see generally subsection (d), paragraph (3) of . See also , subsection (b); , subsection (d); ; ; . A recent exception to this "state of being" principle is the "minimum essential coverage" tax under Internal Revenue Code section 5000A as enacted by the Patient Protection and Affordable Care Act (Public Law 111–148), whereby a tax penalty is imposed as an indirect tax on the condition of not having health insurance coverage; as reasoned by Chief Justice John Roberts in National Federation of Independent Business v. Sebelius: "it is triggered by specific circumstances."NFIB, 567 U.S. ___, 41 (2012).

Federal excise taxes are also required by the U.S. Constitution (Article 1, Section 8) to be uniform throughout the United States: ...all duties, imposts and excises shall be uniform throughout the United States.

Historical background

Federal excise taxes have a storied background in the United States. Responding to an urgent need for revenue following the American Revolutionary War, after the ninth state ratified the U.S. Constitution in 1788 the newly elected First United States Congress passed, and President George Washington, signed the Tariff Act of July 4, 1789, which authorized the collection of tariff duties (customs) on imported goods. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first U.S. Secretary of the Treasury, Alexander Hamilton, in 1789, to tax foreign imports. Hamilton thought it was important to start the U.S. federal government out on a sound financial basis with good credit and a regular, easily collected source of revenue. Customs duties (tariffs) on imported goods, as set by tariff rates, were the source of about 80–95% of all federal revenue up to 1860. Having just fought a war over taxation (among other things), the U.S. Congress wanted a reliable source of income that was relatively unobtrusive, brought in enough money to pay off the debt and pay for the relatively low-cost federal government (at the time) and be relatively easy to collect. Tariffs met all these criteria.

In addition to tariffs, low excise taxes were imposed to provide the federal government with some additional money to pay part of its operating expenses and to help redeem at full value U.S. federal debts and the debts the states had accumulated during the American Revolutionary War.

The first federal budget was about $4.6 million, and the population in the 1790 U.S. census was about four million, so the average federal tax was about $1/person per year. At that time, tradespeople earned about $0.25 a day for a 10- to 12-hour day so that federal taxes could be paid with about four days of work. Paying even this was usually optional, as taxed imports listed on the tariff lists could usually be avoided by buying domestic products if desired.

Table of historical excise taxes collected by the federal government (dollar amounts are in millions)YearTariffIncomeReceipts% TariffFederalReceiptsIncomeTaxPayrollTaxReceipts% Excise1792 $4.4 95.0% $4.6 $- $- 4.7%1795 $5.6 91.6% $6.1 $- $- 5.5%1800 $9.1 83.7% $10.8 $- $- 7.5%1805 $12.9 95.4% $13.6 $- $- 0.2%1810 $8.6 91.5% $9.4 $- $- 1.1%1815 $7.3 46.4% $15.7 $- $- 29.7%1820 $15.0 83.9% $17.9 $- $- 0.6%1825 $20.1 97.9% $20.5 $- $- 0.1%1830 $21.9 88.2% $24.8 $- $- 0.0%1835 $19.4 54.1% $35.8 $- $- 0.0%1840 $12.5 64.2% $19.5 $- $- 0.0%1845 $27.5 91.9% $30.0 $- $- 0.0%1850 $39.7 91.0% $43.6 $- $- 0.0%1855 $53.0 81.2% $65.4 $- $- 0.0%1860 $53.2 94.9% $56.1 $- $- 0.0%1863 $63.0 55.9% $112.7 $- $- 0.0%1864 $102.3 38.7% $264.6 $- $- 0.0%1865 $84.9 25.4% $333.7 $61.0 $- 63.2%1870 $194.5 47.3% $411.3 $37.8 $- 44.7%1875 $157.2 54.6% $288.0 $- $- 38.2%1880 $184.5 55.3% $333.5 $- $- 37.2%1885 $181.5 56.1% $323.7 $- $- 34.7%1890 $229.7 57.0% $403.1 $- $- 35.4%1900 $233.2 41.1% $567.2 $- $- 51.0%1910 $233.7 34.6% $675.2 $- $- 42.8%1913 $318.8 44.0% $724.1 $35.0 $- 47.5%1915 $209.8 30.1% $697.9 $47.0 $- 59.5%1916 $213.7 27.3% $782.5 $121.0 $- 0.0%1917 $225.9 20.1% $1,124.3 $373.0 $- 0.0%1918 $947.0 25.8% $3,664.6 $2,720.0 $- 0.0%1920 $886.0 13.2% $6,694.6 $4,032.0 $- 0.0%1925 $547.6 14.5% $3,780.1 $1,697.0 $- 0.0%1928 $566.0 14.0% $4,042.3 $2,088.0 $- 13.3%1930 $587.0 14.1% $4,177.9 $2,300.0 $- 13.5%1935 $318.8 8.4% $3,800.5 $1,100.0 $- 35.9%1940 $331.0 6.1% $5,387.1 $2,100.0 $800.0 34.2%1942 $369.0 2.9% $12,799.1 $7,900.0 $1,200.032.5%1944 $417.0 0.9% $44,148.9 $34,400.0 $1,900.013.1%1946 $424.0 0.9% $46,400.0 $28,000.0 $1,900.015.1%1948 $408.0 0.9% $47,300.0 $29,000.0 $2,500.015.6%1950 $407.0 0.9% $43,800.0 $26,200.0 $3,000.017.2%1951 $609.0 1.1% $56,700.0 $35,700.0 $4,100.015.3%1955 $585.0 0.8% $71,900.0 $46,400.0 $6,100.012.7%1960 $1,105.0 1.1% $99,800.0 $62,200.0 $12,200.011.7%1965 $1,442.0 1.2% $116,800.0 $74,300.0 $22,200.012.5%1970 $2,430.0 1.3% $192,800.0 $123,200.0 $44,400.08.1%1975 $3,676.0 1.3% $279,100.0 $163,000.0 $84,500.05.9%1980 $7,174.0 1.4% $517,100.0 $308,700.0 $157,800.04.7%1985 $12,079.0 1.6% $734,000.0 $395,900.0$255,200.0 4.9%1990 $11,500.0 1.1% $1,032,000.0 $560,400.0$380,000.0 3.4%1995 $19,301.0 1.4% $1,361,000.0 $747,200.0$484,500.0 4.2%2000 $19,914.0 1.0% $2,025,200.0 $1,211,700.0$652,900.0 3.4%2005 $23,379.0 1.1% $2,153,600.0 $1,205,500.0$794,100.0 3.4%2010 $25,298.0 1.2% $2,162,700.0 $1,090,000.0$864,800.0 3.1%Notes:All dollar amounts are in millions of U.S. dollars. Income taxes include individual and corporate taxes.Federal expenditures often exceed revenue by temporary borrowings.Initially the U.S. Federal Government was financed mainly by customs (tariffs). Average excise % is calculated by dividing excise revenue by total revenue.Other taxes collected are income tax, corporate income tax, inheritance,Tariffs, often called customs or duties on imports, etc. Income taxes began in 1913 with the passage of the 16th Amendment. Payroll taxes are Social Security and Medicare taxes.Payroll taxes began in 1940.Many federal government excise taxes are assigned to trust funds, collected for and "dedicated" to a particular trust. Sources:Historical Statistics of the United States 1789–1945; Series M-42-55; Imports (1789–1945), Accessed August 5, 2011Bicentennial Edition Historical Statistics of the United States Series {Part 2 Zip file: CT1970p2-08;} Series U 1–25; Balance of International Payments Imports 1790–1970 Accessed August 5, 2011Imports 1960–2010 Accessed August 5, 2011"Historical Statistics of the United States 1789–1945", Series P 89–98, columns: Excise Tax (labeled: "Internal Revenue/Other"), "Total receipts", "Customs", "Income and profit taxes" Accessed August 5, 2011White House, Historical Tables 1940–2016; Table 1.1 Tot. Receipts (1901–2010); Table 2-1, 2-4 Excise Tax (1934–2010); Table 2-5 Customs (1940–2010) Accessed August 5, 2011Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970 {Part 2 Zip file: CT1970p2-12;} Series Y 343–351 (1940–1970) Customs, Tot. Receipts, Income taxes; Payroll taxes, Excise; Y342 339 (1940–1970) Receipts; Y-352 357 (1789–1939) Government Receipts: Total (1789–1970), Customs (1789–1970), Y 358 373 Excise tax (1863–1970) Income Tax (1916–1970); Series U 1–25 Balance of International Payments Imports (1790–1970) Accessed August 5, 2011 Historical Statistics of the United States 1789–1945Historical Statistics of the United States Series 1790–1945 Accessed August 5, 2011 Bicentennial Edition Historical Statistics of the United States Series 1790–1970Bicentennial Edition Historical Statistics of the United States Series 1790–1970 Accessed August 5, 2011 U.S. Census Trade StatisticsU.S. Census Trade Statistic Accessed August 5, 2011 Whitehouse Historical Tables 1940–2016Whitehouse Historical Tables 1940–2016 Accessed August 5, 2011