Excise Taxes on Alcohol, Tobacco, and Gasoline: History and Inflation Adjusted Rates

Excise Taxes on Alcohol, Tobacco, and Gasoline: History and Inflation Adjusted Rates

97-331 E
CRS Report for Congress
Received through the CRS Web
Excise Taxes on Alcohol, Tobacco, and Gasoline:
History and Inflation Adjusted Rates
March 7, 1997
Louis Alan Talley
Research Analyst in Taxation
and
Brian W. Cashell
Specialist in Quantitative Economics
Economics Division
Congressional Research Service ˜ The Library of Congress

Excise Taxes on Alcohol, Tobacco, and Gasoline: History
and Inflation Adjusted Rates
Summary
An excise tax is a selective tax levied on a specific commodity or service.
While federal excise taxes have long been a part of the U.S. revenue structure, they
have played a reduced role in recent years. A history of all federal excise tax receipts
shows the proportion of excise tax receipts of total receipts has fallen. In fiscal year
(FY) 1997, it is estimated that all excise tax receipts represent but 3.8% of total
federal receipts. They are projected to slightly increase to 3.9% of receipts in
FY1998 and to remain at 3.9% in FY1999, before decreasing to 3.8% in FY2000.
Projections are that they will further dwindle to 3.7% in FY2001. Thus, excise taxes
can best be termed a very small source of total federal revenue.
Alcohol, tobacco, and gasoline had excise tax rate increases effective November
1951 under the Revenue Act of 1951 as a part of the tax increases to pay for the
Korean War. Rates have been increased several times since then but generally have
not kept pace with inflation. The following table compares current statutory rates
with inflation-adjusted rates—the rates that would apply if those set by the 1951 Act
had kept pace with inflation.
Table 1. Comparison of Statutory and Inflation Adjusted
Excise Tax Rates
Rate if Adjusted
Statutory Rate
for Inflation
Commodity
January 1997
Occurring Nov.
1951 to Dec. 1996
Distilled Spirits (per proof gallon)
$13.50
$63.08
Beer (per barrel)
$18.00
$54.07
Still Wine--Less than 14% alcohol
$1.07
$1.02
content
Still Wine--14-21% alcohol content
$1.57
$4.03
Still Wine--21-24% alcohol content
$3.15
$13.52
Still Wine--24% + alcohol content
Taxed as distilled
Taxed as distilled
spirits
spirits
Champagne and Sparkling Wine
$3.40
$16.34
Artificially Carbonated Wines
$3.30
$11.53
Tobacco (cigarettes per pack)
$0.24
$0.48
Gasoline (per gallon)
$0.183
$0.12
Note: Inflation adjustment made using the Consumer Price Index for All Urban Consumers for
November 1951 and December 1996.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Alcohol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tobacco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Inflation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
List of Tables
Table 1. Comparison of Statutory and Inflation Adjusted
Excise Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary
Table 2. Summary of Changes in the Rate of the Federal
Manufacturers' Excise Tax on Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3. Comparison of 1951 and 1997 Statutory Rates and
Inflation Adjusted Excise Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Excise Taxes on Alcohol, Tobacco, and
Gasoline: History and Inflation Adjusted Rates1
Introduction
An excise tax is a selective tax levied on a specific commodity or service.
While federal excise taxes have long been a part of the U.S. revenue structure, they
have played a reduced role in recent years. Today, excise tax receipts are no longer
a major source of federal revenue. In FY1997, they are estimated to represent but
3.8% of total federal receipts. They are projected to slightly increase to 3.9% of
receipts in FY1998 and to remain at 3.9% in FY1999, before decreasing to 3.8% in
FY2000. Projections are that they will further dwindle to 3.7% in FY2001.2
This report provides inflation adjusted excise tax rates for alcohol, tobacco, and
gasoline products. The base for computation is November 1951; the adjustments
show what the tax rates would be if they had been increased to reflect inflation. All
of the above cited commodities had rate increases effective for that date under the
Revenue Act of 1951. Just as the Congress was prepared to lower excise tax rates
because of peacetime conditions, plans had to be revised as a result of the start of the
Korean War. Thus, the Revenue Act of 1951 was born out of revenue needs due to
increased military expenditures.
A brief history of alcohol, tobacco, and gasoline tax rates since 1951 along with
current revenues from these excise taxes is provided. At the end of this report, a
table shows the inflation-adjusted excise tax rates using the Consumer Price Index
for All Urban Consumers (CPI-U). The CPI-U index numbers for November 1951
through December 1996 were used for computational purposes. With the exception
of gasoline and low-alcohol still wine, these inflation-adjusted tax rates are far higher
than current law tax rates.
Alcohol
The tax rate on distilled spirits, set in November 1951, was raised in October
1985 from $10.50 to $12.50 per proof gallon. The Joint Committee on Taxation
noted that ... "the tax is imposed as a flat amount, rather than as a percentage of sales
price, [and] the effective level of the tax had declined by more than 70% in constant
The author plans to update this report in future years to reflect changes in law or inflation
1
adjustments.
2 U.S. Office of Management and Budget. Budget of the United States Government,
Historical Tables, Fiscal Year 1998. February 6, 1997. p. 30.

CRS-2
dollars since that increase. Congress believed, therefore, that a modest adjustment
of $2.00, to $12.50 per proof gallon, was appropriate." Under the
3
Revenue
Reconciliation Act of 1990, the rate was increased by $1.00 per proof gallon to
$13.50 effective January 1, 1991.
The tax rate on beer was raised in November 1, 1951, from $8.00 to $9.00 per
barrel. The Revenue Reconciliation Act of 1990 doubled the existing rate; thus, the
new rate is $18.00 per barrel. The new act retained the small producer exception of
prior law. Thus, a lower rate applies to small brewers who produce fewer than
2,000,000 barrels of beer per year. The rate for small brewers, which has been in
effect since February 1977, is $7.00 per barrel for the first 60,000 barrels. (A barrel
contains 31 gallons.)4
The excise tax rate on wines was set at a variety of rates which ranged between
17 cents per wine gallon for still wine to $3.40 per wine gallon on sparkling wines.
The tax rates on still wines had not been changed since 1951. However, as the
Korean conflict continued, the need for additional revenues resulted in increases in
the rates on champagnes and sparkling wines and artificially carbonated wines in
1955. Thus, the rate on champagnes and sparkling wines was increased from $2.72
to $3.40 per wine gallon and the rate on artificially carbonated wine from $1.92 to
$2.40 per wine gallon.
Under provisions of the Revenue Reconciliation Act of 1990, the rates range
from $1.07 to $3.40 per wine gallon. These rates are detailed in tables 1 and 3. A
small domestic wineries credit equal to 90 cents per wine gallon is provided for the
first 100,000 gallons of wine production with a phase-out of the credit for wineries
whose production falls between 150,000 to 250,000 gallons.
In addition to the excise taxes on alcohol products, there are also occupational
taxes. A producer/manufacturer of taxable alcohol products with gross receipts of
less than half a million dollars in the preceding taxable year must pay a tax of $500
a year. For those whose gross receipts exceed that amount, the tax is $1,000 a year
per place of business. Additionally, alcoholic beverage wholesalers pay a wholesale
dealer occupational tax of $500 per year per place of business while alcoholic
beverage retailers pay at a rate of $250 per year per place of business.5
The Department of Treasury's Bureau of Alcohol, Tobacco and Firearms
(BATF) reports the following breakdown of actual FY1996 collections of alcohol
taxes: $3.607 billion for distilled spirits; $3.335 billion for beer; $620 million for
3 U.S. Congress. Joint Committee on Taxation. General Explanation of the Revenue
Provisions of the Deficit Reduction Act of 1984 (H.R. 4170, 98th Congress; Public Law 98-
369). Washington, U.S. Govt. Print. Off., 1984. p. 32.
4 For additional information see Beer Excise Taxes: Proposed Reduction in Rates. CRS
Report 96-542 E, by Louis Alan Talley.
5 For additional information see Alcohol Occupational Taxes. CRS Report 96-131 E, by
Louis Alan Talley.

CRS-3
wines; and $108 million in special (occupational) tax. The Budget of the Unite
6
d
States Government for 1998 estimates that alcohol tax receipts will decline to $7.1
billion in FY1997 and FY1998. Revenues collected from all alcohol excise taxes go
into the General Fund of the United States Treasury. As such, these revenues are not
specifically dedicated for any trust fund.7
Tobacco
The tax rate on cigarettes remained unchanged between 1951 and 1982. The
rate was increased from 8 cents to 16 cents per pack as part of the Tax Equity and
Fiscal Responsibility Act of 1982. The reason for that increase was stated in the
explanation of that tax act.
Since the tax is imposed as a set amount, rather than as a percentage of
sales price, the effective level of the tax had declined by more than 70% in
constant dollars since it was last amended. Congress believed, therefore,
that an adjustment to the tax was appropriate. Doubling the tax rate, as
was done under the Act, does not increase the per-pack tax, in real terms,
above the 1951 level. Also, Congress determined that the broad-based
increase in revenue required by the fiscal outlook through 1985 mandated
an increase in the cigarette excise taxes through fiscal year 1985.8
Under provisions in the Revenue Reconciliation Act of 1990 tobacco tax rates
were increased because of large continuing federal budget deficits and the need for
additional federal revenues. The new tax rates became effective in two stages. The
first increase in rates was effective as of January 1, 1991, while the second increase
occurred January 1, 1993. The total rate increase, to 24 cents per pack, equals a 50%
increase in tax rates, with one-half the total increase effective in 1991 and one-half
effective in 1993.
It was estimated in the Budget of the United States Government for Fiscal Year
1998 that collections of tobacco taxes would be approximately $5.7 billion in
FY1997.
9 As reported in the Budget, actual receipts for FY1996 were $5.795
billion. Like alcohol tax receipts, tobacco taxes currently are deposited into th
10
e
General Fund of the United States Treasury and are not dedicated to any trust fund.
6 U.S. Department of the Treasury. Bureau of Alcohol, Tobacco and Firearms. Alcohol,
Tobacco and Firearms Tax Collections. December 10, 1996. p. 1.
7 U.S. Office of Management and Budget. Budget of the United States Government,
Analytical Perspectives, Fiscal Year 1996. February 6, 1997. p. 59.
8 U.S. Congress. Joint Committee on Taxation. General Explanation of the Revenue
Provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (H.R. 4961, 97th
Congress; Public Law 97-248). Washington, U.S. Govt. Print. Off., 1982. p. 411.
9 U.S. Office of Management and Budget. Budget of the United States Government,
Analytical Perspectives, Fiscal Year 1996. February 6, 1997. p. 39.
10 Ibid.

CRS-4
Gasoline
The federal excise tax on gasoline became law at a one-cent per gallon rate with
the passage of the Revenue Act of 1932. The imposition of a gasoline tax was
imposed to help offset a federal budgetary imbalance. Since that time, the tax has
been extended and/or raised many times.
In 1956, Congress established the Highway Trust Fund and revenue receipts
from the gasoline tax were dedicated for highway programs. The conventional
wisdom that the gas tax represented a user tax held from that time until passage of
the Omnibus Budget Reconciliation Act of 1990 (OBRA90). With passage of
OBRA90, a small part of the gasoline tax increase was allocated to general revenues,
thus returning it to the role it served prior to the establishment of the Highway Trust
Fund, at least in part. Under provisions of the Omnibus Budget Reconciliation Act
of 1993 (OBRA93), the tax on gasoline is currently set at 18.3 cents per gallon. Table
2 charts the tax rates since 1951.
Under current law, 14 cents of the total gasoline tax is dedicated to the Highway
Trust Fund and the remaining 4.3 cents is dedicated for federal deficit reduction
purposes. The Leaking Underground Storage Tank Trust Fund (LUST) tax rate of
0.1 cents per gallon terminated on January 1, 1996. The 18.3 cents rate is reduced
to 4.3 cents on October 1, 1999, when all but the OBRA93 imposed deficit reduction
part is scheduled to expire.

The Budget of the United States Government for Fiscal Year 1998 states that
actual FY1996 collections of gasoline taxes for the Highway Trust Fund were
$24.651 billion. Receipts for this trust fund are estimated at $24.880 billion in
FY1997, and $25.332 billion in FY1998. The Budget states that actual FY199
11
6
collections for the Leaking Underground Storage Trust Fund were $48 million. The
tax expired January 1, 1996. President Clinton's budget proposal calls for the
reinstatement of the 0.1 cent per gallon tax after the date of enactment and before
October 1, 2007. Revenue collections would be deposited in the LUST Trust Fund.
From the Highway Trust Fund, 9.5 cents is expended on highway-related
programs with 2 cents placed into the Mass Transit Account. Amounts in the Mass
Transit Account can be used for capital, capital-related and operating expenditures
under the Urban Mass Transportation Act of 1964. Additionally, transfers from the
Highway Trust Fund may be made into the National Recreational Trails Trust Fund,
the Land and Water Conservation Fund, and the Boating Safety Account of the
Aquatic Resources Trust Fund. Funds so transferred are equivalent to the gasoline
taxes collected on the fuel used in motorboats. Under the Intermodal Surface
Transportation Efficiency Act (ISTEA) of 1991, a new trust fund known as the
National Recreational Trails Trust Fund was established. This fund receives tax
transfers from the Highway Trust Fund that represent tax receipts (imposed on
gasoline as well as diesel, and special motor fuels) collected from nonhighway
recreational fuel use. Examples of recreational fuels are those used in vehicles on
1 1 U.S. Office of Management and Budget. Budget of the United States Government,
Analytical Perspectives, Fiscal Year 1998. February 6, 1997. p. 59.

CRS-5
recreational trails or back country terrain, and non-business fuel used in outdoor
recreational equipment such as camp stoves.
Table 2 summarizes the federal excise tax rate on gasoline by time period.
Table 2. Summary of Changes in the Rate of the Federal
Manufacturers' Excise Tax on Gasoline
Rate of Tax in cents per gallon
Period to Which Applicable
1
June 21, 1932, to June 16, 1933
1.5
June 17, 1933, to December 31, 1933
1
January 1, 1934, to June 30, 1940
1.5
July 1, 1940, to October 31, 1951
2
November 1, 1951, to June 30, 1956
3
July 1, 1956, to September 30, 1959
4
October 1, 1959, to March 31, 1983
9
April 1, 1983, to December 1, 1986
9.1
January 1, 1987, to August 31, 1990a
9
September 1, 1990, to November 30, 1990
14.1
December 1, 1990 to September 30, 1993
18.4
October 1, 1993 to December 31, 1995b
18.3
January 1, 1996 to September 30, 1999
4.3
October 1, 1999 and thereafter
a This act provided that the 0.1 cents per gallon tax will terminate on the earlier of December 31,
1991, or when the Secretary of the Treasury determines that taxes equivalent to at least $500
million in net revenues are in the Trust Fund. This additional tax terminated after August 31,
1990, because the LUST Trust Fund had reached its net revenue target for termination.
(Internal Revenue Service Announcement 90–82, released June 27, 1990.)
b Beginning on October 1, 1995, the revenues collected from the OBRA90 2.5 cents "deficit reduction
rate" were credited to the account of the Highway Trust Fund. Thus, the distribution of
amounts collected from the gasoline excise tax changed. The Highway Trust Fund receives
increased revenues since the rate credited to that fund increased to 14 cents. At this same time,
the amount credited to the General Fund decreased from 6.8 to 4.3 cents.

CRS-6
Inflation Adjustment 12
We have adjusted the alcohol, tobacco, and gasoline tax rates by use of the
Consumer Price Index for All Urban Consumers. The CPI-U is published by the
Department of Labor, Bureau of Labor Statistics.13
The figures in table 3 show what the current excise taxes on alcohol, tobacco,
and gasoline would be if they had been indexed to the CPI-U since November 1951.
To update these rates, the CPI-U index numbers for November 1951 and December
1996 were used.
Table 3. Comparison of 1951 and 1997 Statutory Rates and
Inflation Adjusted Excise Tax Rates
Statutory
Statutory
Rate if Adjusted
Rate
Rate
for Inflation
Commodity
November
January
Occurring Nov.
1951
1997
1951 to Dec. 1996
Distilled Spirits (per proof gallon)
$10.50
$13.50
$63.08
Beer (per barrel)
$9.00
$18.00
$54.07
Still Wine--Less than 14% alcohol
$0.17
$1.07
$1.02
content
Still Wine--14-21% alcohol content
$0.67
$1.57
$4.03
Still Wine--21-24% alcohol content
$2.25
$3.15
$13.52
Still Wine--24% + alcohol content
Taxed as
Taxed as
Taxed as distilled
distilled spirits
distilled spirits
spirits
Champagne and Sparkling Wine
$2.72
$3.40
$16.34
Artificially Carbonated Wines
$1.92
$3.30
$11.53
Tobacco (cigarettes per pack)
$0.08
$0.24
$0.48
Gasoline (per gallon)
$0.02
$0.183
$0.12
Note: Inflation adjustment made using the Consumer Price Index for All Urban Consumers for November 1951
and December 1996.

12 This report does not track particular bills or legislation; however, an advisory commission
set up by the Senate Finance Committee has made recommendations to improve the true
measure of the cost of living. Such changes might impact the projected inflationary
adjustments made in this report. For additional information see The Consumer Price Index
and the "True" Cost of Living. CRS Report 97-33 E, by Brian W. Cashell and Adjusting
Benefits for Inflation: Impacts of Policy Change. CRS Report 95-670 EPW, by James R.
Storey.

13 For a description see The Consumer Price Index: A Brief Overview. CRS Report 97-150,
by Brian W. Cashell.