Alcohol Excise Taxes:

Simplifying Rates Can Enhance Economic and Administrative Efficiency

GGD-90-123: Published: Sep 27, 1990. Publicly Released: Sep 27, 1990.

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GAO examined the economic inefficiencies and administrative problems associated with the current alcohol excise tax system.

GAO found that: (1) inflation has eroded the burden of alcohol excise taxes from generating 8.3 percent of all 1969 tax revenues to 3.6 percent of 1989 revenues; (2) the differential tax rates on alcohol products resulted in products with similar alcohol content being taxed differently; (3) a standardized tax on the alcohol content of final alcohol products would eliminate the current mix of different rates that depend on such factors as the type of product or the ingredients used; (4) tax credits could lower the effective tax rate for a distilled spirits product from the current rate of $12.50 per proof-gallon to as low as $6.30 per proof-gallon; (5) tax credit incentives could distort the production process, since they encourage an inefficient allocation of resources to make those products; (6) tax credits resulted in a significantly higher loss of tax revenues than Congress originally intended; (7) the Bureau of Alcohol, Tobacco and Firearms (BATF) experienced problems in administering and ensuring full compliance with the tax credit; and (8) BATF estimated that it spent $10.3 million to collect the $129 million in occupational taxes, a cost of $.08 for every dollar collected.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress did not eliminate the section 5010 tax credit or standardize rates when it increased alcohol and tobacco excise taxes effective January 1, 1991.

    Matter: Due to the economic inefficiencies and administrative burdens existing under the current excise tax rate structure, Congress should consider simplifying the structure of alcohol excise taxes. Congress should consider standardizing alcohol excise tax rates across products on the basis of the percentage of alcohol in a beverage regardless of the mix of ingredients, thereby permitting the elimination of the section 5010 tax credit.

  2. Status: Closed - Not Implemented

    Comments: While legislation has been introduced proposing to eliminate special occupational taxes, enactment is very unlikely given the current budget climate.

    Matter: Congress should consider the role of special occupational taxes in relation to the broader excise tax rate structure. Given the excessive administrative costs and compliance burdens involved in generating relatively small amounts of revenue, Congress should consider changing the special occupational tax by either: (1) eliminating it with a corresponding increase in excise tax rates; or (2) collecting the tax from only producers and importers and varying the tax on the basis of the size of the facility.

  3. Status: Closed - Not Implemented

    Comments: Congress did not decide to adjust the rates to keep pace with inflation when it took action to increase alcohol and tobacco excise tax rates, effective January 1, 1991.

    Matter: As Congress deliberates about the structure of those taxes, it may want to adjust the rates to keep pace with inflation.


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