Alcohol Taxes
According to the Distilled Spirits Council of the United States, Inc. (DISCUS), liquor is the most highly taxed consumer product in the nation. The organization estimated in 1999 (the most recent data available) that direct and indirect local, state, and federal taxes account for 51% of the typical bottle price. While the beer and wine industries are taxed at lower levels, they also contribute a significant amount of tax revenue.
In fiscal year 2004 the federal government collected approximately $8.7 billion in excise taxes on alcoholic beverages. (Excise taxes are monies paid on purchases of specific goods, such as alcohol and tobacco.) Federal excise taxes on distilled spirits amounted to about $4.3 billion, which included taxes on both domestic and imported distilled spirits—nearly half that total. (See Table 8.1.) Distilled spirits are taxed by the proof gallon (pg). A proof gallon is a standard United States gallon of 231 cubic inches containing 50% ethyl alcohol by volume, 100 proof.
Excises taxes on wine and beer make up the other half of the excise taxes collected on alcoholic beverages. The calculation of wine taxes depends on several variables, such as alcohol content and the size of the winery; in 2004 federal excise taxes on wine totaled $767.9 million. Total beer excise taxes were much higher, at $3.7 billion. Brewers who produce fewer than two million barrels (one barrel equals thirty-one gallons) get a reduced excise tax rate of $7 per barrel on the first sixty thousand barrels. Those who produce more than two million barrels pay an excise tax of $18 per barrel. (See Table 8.1.)
In addition to the federal excise taxes, the states levy sales taxes on alcohol. In 2003 the per capita state sales tax collected on alcoholic beverages—averaged across states—was $15.16. Total state tax collections from alcohol include not only the sales tax ($4.4 billion in 2003) but also payments for alcoholic beverage licenses ($345.9 million in 2003). Taxes on alcohol amounted to about 0.085% of the nation's total state taxes collected in 2003. (See Table 8.2.)
Tobacco Taxes
In 2001-02, federal, state, and local governments collected $17 billion in excise taxes on tobacco products. (See Table 8.3.) Most of this revenue came from the sale of cigarettes.
In 2005 the federal excise tax on cigarettes was thirty-nine cents a pack, up from thirty-four cents in 2000 and sixteen cents in 1991. In May 2001 a presidential commission comprised of farmers, health advocates, and economic experts recommended to President George W. Bush that the excise tax on cigarettes should increase by seventeen cents a pack, which would be used to pay tobacco farmers to stop growing the crop. In addition, the National Action Plan for Tobacco Cessation recommended to Congress that the excise tax be raised by an additional $2.00 per pack to pay for smoking cessation programs. Congress did not raise the tax.
Cigarette prices increased forty-five cents per pack on November 16, 1998, the day of the Master Settlement Agreement (MSA) (Thomas C. Capehart, Jr., Trends in the Cigarette Industry after the Settlement Agreement, U.S. Department of Agriculture, October 2001). Between 1998 and 2002, the tobacco industry raised the average price of cigarettes by more than
TABLE 8.1
Alcohol, Tobacco, and Firearms (ATF) tax collections, fourth quarter cumulative summaries, 2003 and 2004 Cumulative
| Cumulative | |||
| Revenue source | Rate | 2004 | 2003 |
| Excise tax, total | $16,848,746 | $16,574,747 | |
| Alcohol tax, total | $8,723,814 | $8,470,183 | |
| Distilled spirits tax, total | $4,295,502 | $4,114,593 | |
| Domestic | $13.50 per pg | $3,220,871 | $3,132,577 |
| Imported | $13.50 per pg | $1,074,631 | $982,016 |
| Wine tax, total | $767,891 | $750,730 | |
| Domestic | Various | $547,505 | $534,927 |
| Imported | Various | $220,386 | $215,803 |
| Beer tax, total | $3,660,421 | $3,604,860 | |
| Domestic | $18 or $7 per barrel | $3,218,708 | $3,189,580 |
| Imported | $18 per barrel | $441,713 | $415,280 |
| Tobacco tax, total | $7,909,734 | $7,910,669 | |
| Domestic | |||
| Regular | Various | $7,439,717 | $7,433,763 |
| Floor stocks | Various | $0.125 | $1,628 |
| Imported | Various | $470,017 | $475,278 |
| Unclassified alcohol and tobacco tax (domestic), total | Various | $211 | $475 |
| Firearms and ammunition tax, total | 10% or 11% of sales price | $214,987 | $193,420 |
| Special (occupational) tax, total | $94,053 | $103,779 | |
| Total tax collections | $16,942,799 | $16,678,526 | |
| Notes: This is an unofficial report. Official revenue collection figures are stated in the Alcohol and Tobacco Tax and Trade Bureau (TTB)/Alcohol, Tobacco Products and Firearms (ATF) Chief Financial Officer Annual Report. All "imported" tax collection figures are obtained from U.S. customs data. Cumulative figures for current fiscal year adjusted to reflect classification of unclassified alcohol and tobacco tax collections previously reported and to reflect collection adjustments for prior tax periods. Source for other tax collection figures on this report is a TTB/ATF database that records tax collection data by tax return period. This data is summarized on this report by the quarter in which an incurred tax liability is satisfied. Unclassified alcohol and tobacco tax is tax collected, but not yet posted to a taxpayer account due to missing employer identification number (EIN), permit number, and/or other taxpayer identity information. | |||
$1.25 a pack to cover the costs of state lawsuits against them. However, Wall Street tobacco industry analyst Martin Feldman has calculated that companies paid out only about fifty-one cents per pack in 2000 to cover their settlement costs and roughly fifty-nine cents per pack in 2001 ("U.S. Cigarette Companies' Settlement-Related Price Hikes Are Excessive," National Center for Tobacco-Free Kids, October 28, 2002). Thus, he calculated, tobacco companies were receiving more than fifty cents per pack of surplus revenue from that $1.25 price increase.
States have raised their sales taxes on cigarettes (see Table 8.3) to help defray health costs associated with tobacco. According to the Centers for Disease Control and Prevention (CDC), every pack of cigarettes
TABLE 8.2
Tax collection by state governments, 2003
| United States | ||
| Item | Amount | Per capita |
| Population (July 1, 2003, released December 18, 2003) | 290,246 | X |
| Total taxes | 546,694,430 | 1,883.56 |
| Property taxes | 9,893,746 | 34.09 |
| Sales and gross receipts | 271,965,925 | 937.02 |
| General sales and gross receipts | 184,584,703 | 635.96 |
| Selective sales taxes | 87,381,222 | 301.06 |
| Alcoholic beverages | 4,398,717 | 15.16 |
| Amusements | 4,433,501 | 15.27 |
| Insurance premiums | 12,528,809 | 43.17 |
| Motor fuels | 32,180,995 | 110.87 |
| Pari-mutuels | 302,110 | 1.04 |
| Public utilities | 10,557,058 | 36.37 |
| Tobacco products | 11,477,437 | 39.54 |
| Other selective sales | 11,502,595 | 39.63 |
| Licenses | 35,954,226 | 123.88 |
| Alcoholic beverages | 345,932 | 1.19 |
| Amusements | 217,122 | 0.75 |
| Corporation | 6,223,764 | 21.44 |
| Hunting and fishing | 1,133,434 | 3.91 |
| Motor vehicle | 16,208,646 | 55.84 |
| Motor vehicle operators | 1,517,116 | 5.23 |
| Public utility | 393,393 | 1.36 |
| Occupation and business, not elsewhere classified (NEC) | 9,350,323 | 32.22 |
| Other licenses | 564,496 | 1.94 |
| Other taxes | 228,880,533 | 788.57 |
| Individual income | 181,931,133 | 626.82 |
| Corporation net income | 28,471,238 | 98.09 |
| Death and gift | 6,685,304 | 23.03 |
| Documentary and stock transfer | 6,280,050 | 21.64 |
| Severance | 5,270,747 | 18.16 |
| Other | 242,061 | 0.83 |
| (X)=not applicable | ||
TABLE 8.3
Governmental revenues from tobacco products, 1991/92-2001/02
| Excise taxes | Total excise taxes | State sales tax | |||
| Year | Federal | State | Local | ||
| Million dollars | |||||
| 1991/92 | 5,110 | 6,132 | 194 | 11,436 | 1,996 |
| 1992/93 | 5,602 | 6,272 | 188 | 12,062 | 2,042 |
| 1993/94 | 5,714 | 6,778 | 185 | 12,623 | 2,005 |
| 1994/95 | 5,833 | 7,250 | 182 | 13,342 | 1,995 |
| 1995/96 | 5,795 | 7,608 | 181 | 13,584 | 1,998 |
| 1996/97 | 5,864 | 7,676 | 177 | 13,717 | 2,000 |
| 1997/98 | 5,673 | 7,975 | 196 | 13,844 | 1,977 |
| 1998/99 | 5,304 | 8,328 | 190 | 13,817 | 2,388 |
| 1999/2000 | 7,216 | 8,197 | 187 | 15,600 | 2,416 |
| 2000/01 | 7,373 | 8,411 | 190 | 15,974 | 2,364 |
| 2001/02 | 8,284 | 8,548 | 200 | 17,032 | 3,444 |
| Note: Data collected from July–June. | |||||
FIGURE 8.1
Cigarette excise tax rates and rankings, 2005
sold in the United States in 1999 cost the country an estimated $7.18–$3.45 for medical care and $3.73 for lost productivity ("Annual Smoking-Attributable Mortality, Years of Potential Life Lost, and Economic Costs—United States, 1995-1999," MMWR, April 12, 2002).
Another rationale for raising taxes on cigarettes is to discourage people from starting to smoke. Furthermore, some smokers may be motivated to stop smoking because they can no longer afford cigarettes.
According to the Campaign for Tobacco-Free Kids, the average price for a pack of cigarettes was $4.12 as of early 2005. Prices vary from state to state, depending on the state sales tax. (See Figure 8.1.) The average tax in the nation in early 2005 was eighty-five cents per pack. Between January 2002 and early 2005, sales taxes on cigarettes were raised in thirty-seven states, the District of Columbia, and Puerto Rico.
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