Tax Policy:

Revenue Potential of Restoring Excise Taxes to Past Levels

GGD-89-52: Published: May 9, 1989. Publicly Released: May 9, 1989.

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GAO discussed: (1) alternatives for increasing revenues from excise taxes imposed on alcoholic beverages, tobacco, gas-guzzling automobiles, firearms, and wagering occupations; and (2) associated policy and administrative issues.

GAO found that: (1) to ensure that the real dollar value of excise tax revenues does not erode over time without periodic congressional intervention, Congress could index unit rates to an appropriate measure of price change or convert unit excise taxes to an ad valorem structure; (2) if Congress had indexed the excise taxes reviewed for inflation since 1965, the taxes would have generated an estimated $5.6 to $13.1 billion in additional revenue in 1989 and about $32.9 to $75.3 billion over the 5-year period from 1989 to 1993; (3) increasing or changing the excise tax rate structure might cause administrative problems; and (4) while opponents of excise tax increases argue that such taxes are regressive and decrease consumption, a majority of the public favors increases in certain excise taxes, specifically those involving alcohol and tobacco, since such taxes help reduce the deficit and offset some of the social costs resulting from the consumption of the taxed items.

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