Burk 1956 ' CopjWSir 1956 by THE TAX FOUNDATION, INC. 30 ROOh w Pkma, Now York 10, Now York _ _^1 ~'' _ _ -_ . ._ _ . THE TAX FOUNDATIO N BOARD OF TRUSTEES - - Orris. W. Amm B. E. Hts-iranrsDx = - Eftc. rice Presiierr. FirstRm"@dBank•/Sdtl4keCity Roswn.L MAcmL C ~ s":•e ~t«.e - - ELLswoirm C ALVORD Atwd Atmd WALT= T. MmKaT 5, JR. Forstmann red" Compny = GEatcs D dAtcEr -_ - ra t~xiwts.8.7eysESmort A. T. Mmc= - CBum L CAmpmr..L HERSERT J- M, m CAommi . Fs ewcc C•mmitt , - Tic Ter Fie deri s Cawnecticc•t L4* & Paorw Ce.rpaY — ` RATMom Mom S. SWAM COLT xesssseek Cioraay Booker- Tr" Cootpmy T. JnTumn Coou= Preriden;Stud rd 09 Co. of Cow nor• awmor.Unmd Fran Compny = - - - H. W. PRomm, JR. FREDMUC G. Downs CA-man. Armstrong C-k fi p-y EscG rice Prealem4 GeaerdMaws Corpora" A. W. og, CHARLES T. FmtM JR. eras mFinancen"w Cewzatirreee ; Arnide~tt, x t;«..tBark / Db`r it - eYtiwA4ncre Etertrie Cerprti+s LAMAR Fampic, JR. DR. CUT E. SNAMY - - Ciermo. Anderaow, Cm Compny Ciacefli , B-bwd-S mtkcm Cauca FRED F. FLORENCti DR. WALTEn E. SPAH R Preaidee , RCPSWC N6d@i Bak Of DOMMS ,Year York UnizersiO GORDON GRAN, JR. Louts J. TABER - oatltaiiesom Ckeasicd C•rp arimm President, Formers do Traders file tnsomwe Co. _ JOHN W. HANES = RmE H. TATLOR Olin l tetsiies" Cienied Corpratios Presid-IK Uni- M Compxt o/ Cdi ande F. PEATFT HEFrELfT rcER CLOUD WAMr= President F. A.Perery sk Compssy CAdnxan. Carrier Corporation H. J. HEI M If DR. ROBERT E Witmm President X_ L Heins Com pmty Chairmen. Standard Oil Company (ladimse) CRARr.Es R. Hoox BEN H. WOOTEN CAairman. Armco Steel Corporation President' First National Bank in Dallas OFFICER S JOHN W. HANES CHARLES R. Hook HERBERT J. MILLER _ CA.irmam Vice CAairmom Executive Wrectar RoswELL MAcmL S. SLOAN COLT Ai.FRED PARKER President Treasurer Secretary CHAPTER PAG E I INTRODUCTION 7 - A. Purpose of Study 7 B_ Definition of Excise Taxes 7 11 HISTORIC .:. DEVELOPMENT OF EXCISE TAXE 9 A. The Earliest Exciser- Hamilton X{_ Jefferson 9 _ `B_ Successive Wartime Excise Systems and Peacetime Rerral _ 9 = C. Z. Continuing Emergency Excise Tax System I? - ^ r III -DETERMINING THE ROLE OF EXCISE TAXES IN THE FEDERAL _ TAX SYSTEM __ --- 19 A. Distribution of the Tax Burden by Income Classes 19 1_ Distribution of the Excise Tax Burden 1 9 _ 2_ Overemphasis on the Question of Regressivity vs . Progr_ssivity 23 - H_ Other Considerations Involved in Tax Policy _ . _ . _ 1 . Amount of Revenue Required Z5 Z. Diversity in Revenue Sources 26 -- 5_ Non-Revenue Purposes Z7 4- Overlapping with btate and Local Taxes ZS C_ Advantages of Excise Taxes_. 29 - 1 . Stability of Yield 29 2. Reaching Income Not Directly Subject to the Income Tax Z9 3. Convenience for the Taxpayer 34 - D_ Conclusion 35 - IV THE PRESENT EXCISE TAX SYSTEM 36 A. Liquor and Tobacco Taxes 36 B. Taxes on Transportation and Communications 36 1 . Highway User and Related Taxes 38 < 2. Taxes on Transportation and Communication Services 40 = C. Taxes or. Miscellaneous Goods and Services 40 _ D_ Weaknesses of the Present Excise Tax System 42 1_ Discriminatory Rates 42 __- 2. Selection of Taxable Items 43 = 3. The Concentration of Present Excises 43 _ V ALTERNATIVES FOR REVISION OF EXCISE TAXES 45 A_ A Permanent Selective Excise System 45 B_ A General Sales Tax 46 L C. Relative Merits of a Retail Sales Tax, a General Manufacturers ' Excise Tax, and a : alue Added Tax 48 t . Avoidance of Discrimination 48 2. Distribution of the Burden by Income Classes 49 3. Consumer Awareness of the :ax and Its Amount 50 4. Pyramiding 50 5. Overlapping with State and Local Taxes 5 1 6. Ease of Administration 5 Z 7. Ease of Compliance 5 3 8. Size of Tax Rate and Base :53 D. Conclusion 53 APPENDiX 55 A. Estimated Base of a Federal Retail Sales Tax 55 B . Estimated Base of a Manufacturers Excise Tax 56 C. Estimated Base of a Value Added Tax - 60 TABLE PAG E 1. Federal Tax Collections by Source, Selected Periods 1792-1912 10 2_ Federal Excise Tax Rates on Selected Items, as of December 31 , Selected Years 1913-1955 1213 3. Federal Tax Collections by Source, Fiscal Years 1913-1955 14 4_ Federal Tax Collections by Source, Percentage Distribution . Fiscal Years 1913-1955 _ : 15 = - 5_ Federal Excise Tax Collections by Maior Source, Fiscal Years -= - 161913-1955_ _ -------------- = - 6. Estimated Revenre Effect of the Revenue Act of 1932, Fiscai Year 1933 . 17 ~- - Y 7- Total Tax Burden as a Percentage of Total Income by Money Income - - Classes, Calendar Years 1948 and 1959 .20 - Federal Excise Tax and Corporate Income Tax Burden as a Percentage ,- , ooff Total Income, by Morey Income Cb sses . Calendar Years 1948 and 1954 - - ,- 9. Personal Deductions for faxes as a Percentage of Ae ;justed Gros s ., ==Income or. Feder+l Income Tax Returns with Itemized Deductions , ~` = by Adjust.-.d Gross Income glasses. Income Year 1952 _ _ _ `s - W . _ Total Personal Income and Taxable Income Under Federal Individua l Income Tax, Calendar and Income Years 194E-1952 30 Total Compiled Receipts and Net Income of Corporations Unde r _ Federal Corporation Incorr _ Tax; Income Yeas 1940-1951 31 - - ' :t - _ -12. :- Relationship of Total Personal Income to Taxable 1rcame Under Federal Individual Income Tax. Calendar and Income Year 1952 - . 32 - 13. -Relationship of Tax Base to Total Income . and Ef:ective Tax Rate - Under Federal Individual Income Tax, Income Years 1939 and 1952 . -34 14. Federal Excise Tax Collections b; Detailed Source, Fiscal Year 1955 37 15. Rates of Federal Excise Taxes on Alcol=olic Beverages and Tobacco, y - = January 1956 38 16. -Rates of Federal Excise Taxes on Transportation and Communications, January 1956 39 17. Rate-. of Federal Excise Taxes on Certain Miscellaneous Goods an d Services . January 1956 41 1.8. Selected Taxable and Non-Taxable Commodities Under Federal Excis e - Taxes. January 1956 44 19. Family Expenditures by Type as a Percent of Family Income, by Money Income Class . Calendar Year 1950 47 = - 20- ,_ . Ranking of Three Forms of General Sales or Excise Taxes for Federal - Purposes Under Selected Criteria 54 - - APPENDIX TABLE S At . Estimated Base of a Federal Retail Sales Tax, Fiscal Year 1955 :57 ~= = A2. Estimated Base of a Manufacturers Excise Tax, Calendar Year 1955 59 A3.- Estimated Base of a Ya :ue Added-Tax, Calendar Year 1954 and 1955 60 I` – . 4 ~f _ . r~ ~i l~ " r ~ ~ \ t ~ I~ ( I i % ~ f. r 1 i t ~I i i ri i i r _ i f . ~r , ~ ~~ i i . I . ~. ' I r ~ ~ ~ - ~, ~ r i L~ !J , r; . - ,- I - , . ~ - ~ ;~ ~I `, I , ;, I , , , ~ . , , I, 1 I I ~~ ~ ~ . - ~, ` r !~ ~ r _. I ~ ~ : 'E ` ' , ' ~ f ~ ~ ,f ~ P 1 f f ~- ~~ ~ ;I , ~~ ,~L s: ,,'' . , ~; ,, , /I ~l J . : ~ ~ i S4 ; ~r . IY r 1 1 ~ ,II . y I , r .,` ~~ ~~ I (ti . ~~ ~1 r ~I ''i i .. I r ; - ~ _ l~ i rf P I P' ~ it { ~ f ~ r '~ 1 ~ ~` d ! .L S L lf ' I I I ~ ~ I f ., t~ l r i5 v III ~ 'rr 1 r , i I i r .~r ~`f t~ ' I I f ' ~ P 1 r 1 1' i ~ ~ .f ~~. I P . ~, ~ , l '.1 I J ` (, Ir ; P , i ~9f ' r + 4i I I. r ,~A I I ~`PI f ~ l 11 ' `r ~ I R1 1~ . fl 11 r 1' v Ir , I ~ e, j /~l r . '~l~~i I 1111+ F ~. ~ r t t ' I 'I - , ~ i i ~ P • II 1 ~ - it ~ _ l fl ! Ir fl ' J ~ Z ~ 71~~~~1 ~I~i I. i I III P . 4f ., ~ I~ / , rl ~ I ~~ ~ 1~ ' II (~Itl I~~I I~ ~ y/ . ' - ~i f ~ 1 F rf ~ . I~ ~ .~ 1 - a ~ r~ 1~ + ~ : ~ . r l '.~ • r . Y, ~.r' , ~~ ,~( rf INTRODUCTION -A. Purpose of the Study The purpose of this study is to find a logical, permanent basis for F :.ieral excise taxation . As will be shown in Chapter 11, the present system of Federal =excises is to a large extent a result of various pressures on Congress, particularl y of the emergency needs for revenue during the 1930s, World War II, and the Korea n War. Because they have been rather haphazardly selected, present excises involv e discrimination among taxpayers and undesirable effects on economic activity . To find a new basis for excise taxation requires first an examination o f what has been done in the past, and second, an analysis of the proper role of ex- cises in the Federal tax system . Chapter II contains an historical sketch of excis e taxes from 1791 to the present. Chapter III contains an analysis of the variou s issues and considerations involved in excise tax policy ; it is concluded that excise s should play a more important roie in the Federal tax system . In Chapter IV the characteristics of the present excise tax system are examined in some detail and its weaknesses are set out . In Chapter V the alternatives of an extension of th e selective excise tax system vs. adoption of a general sales or excise tax are con- sidered; three forms of the latter are compared--a retail sales tax, a manufac- turers excise tax, and a value added tax . Since this is a study of tax policy, little attention is given to technical and administrative problems . These problems have recently been studied in detail b y a subcommittee of the House Ways and Means Committee .