Burk 1956

'

CopjWSir 1956 by

THE TAX FOUNDATION, INC.30 RO&Oh w Pkma, Now York 10, Now York

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THE TAX FOUNDATIO N

BOARD OF TRUSTEES - -

Orris. W. Amm B. E. Hts-iranrsDx

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-Eftc.ricePresiierr.FirstRm"@dBank•/Sdtl4keCity Roswn.L MAcmLELLswoirm C ALVORD

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-Atwd & Atmd WALT= T. MmKaT 5, JR.

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GEatcs D dAtcErForstmann red" Compny

- _- ra t~xiwts.8.7eysESmort A. T. Mmc=

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CBum L CAmpmr. .L HERSERT J- M,• * mCAo&mmi . Fs ewcc C•mmitt , -

Tic Ter Fie deri sCawnecticc•t L4* & Paorw Ce .rpaY —

` RATMom MomS. SWAM COLT xesssseekCioraay Booker-Tr" Cootpmy

T. JnTumn Coou= Preriden;Stud rd09Co. ofCow nor•awmor.Unmd Fran Compny =

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H. W. PRomm, JR.FREDMUC G. Downs CA-man. Armstrong C-k fi p-yEscG rice Prealem4 GeaerdMaws Corpora"

A. W.CHARLES T. FmtM JR.

og,n"weeras mFinance Cewzatirree;

Arnide~tt, x t;«..tBark •/ Db`r it

- eYtiwA4ncre Etertrie Cerpr•ti•+s

LAMAR Fampic, JR. DR. CUT E. SNAMY

- -Ciermo. Anderaow, C*&m & Compny Ciacefli , B&-bw&d-S mtkcm Cauca

FRED F. FLORENCti DR. WALTEn E. SPAH RPreaidee , RCPSWC N6d@&i BakOf DOMMS

,Year York UnizersiO

GORDON GRAN, JR. Louts J. TABER

-oat ltaiiesom Ckeasicd C•rp arimm President, Formers do Traders file tnsomwe Co.

_

JOHN W. HANES = RmE H. TATLOROlin 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 WitmmPresident X_ L Heins Com pmty Chairmen. Standard Oil Company (ladimse)

CRARr.Es R. Hoox BEN H. WOOTENCAairman. Armco Steel Corporation President' First National Bank in Dallas

OFFICER SJOHN W. HANES CHARLES R. Hook

HERBERT J . MILLER

_CA.irmam Vice CAairmom

Executive WrectarRoswELL MAcmL S. SLOAN COLT

Ai.FRED PARKERPresident Treasurer

Secretary

CHAPTER PAGE

I INTRODUCTION 7

- A. Purpose of Study 7B_ Definition of Excise Taxes 7

11 HISTORIC .:. DEVELOPMENT OF EXCISE TAXE 9A. 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 __• •---• 1 9A. 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 Z5Z. Diversity in Revenue Sources 26

-- 5_ Non-Revenue Purposes Z74- Overlapping with btate and Local Taxes ZS

C_ Advantages of Excise Taxes_ .. . 29

-1 . Stability of Yield 292. Reaching Income Not Directly Subject to the Income Tax Z93. Convenience for the Taxpayer 34

- D_ Conclusion 35

-

IV THE PRESENT EXCISE TAX SYSTEM 36A. Liquor and Tobacco Taxes 36B. 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 45A_ A Permanent Selective Excise System 45B_ A General Sales Tax 46

LC. Relative Merits of a Retail Sales Tax, a General Manufacturers '

Excise Tax, and a : alue Added Tax 48t . Avoidance of Discrimination 482. Distribution of the Burden by Income Classes 493. Consumer Awareness of the ':ax and Its Amount 504. Pyramiding 505. Overlapping with State and Local Taxes 5 16. Ease of Administration 5 Z7. Ease of Compliance 5 38. Size of Tax Rate and Base :'53

D. Conclusion 53

APPENDiX 55A. Estimated Base of a Federal Retail Sales Tax 55B . Estimated Base of a Manufacturers' Excise Tax 56C. Estimated Base of a Value Added Tax - 60

TABLE

PAGE

1. Federal Tax Collections by Source, Selected Periods 1792-1912 1 0

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 - =1913-1955_ _

--------------16

=

-

-

6 . Estimated Revenre Effect of the Revenue Act of 1932, Fiscai Year 1933 . 17

~- µ

-

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 ,- ,o fof Total Income, by Morey Income Cb sses . Calendar Years1948 and 1954

-

-

,-

9. Personal Deductions for 'faxes as a Percentage of Ae ;justed Gross

~`., ==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 lIncome 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 ' 3816 . - Rates of Federal Excise Taxes on Transportation and Communications ,

January 1956 3917 . Rate-. of Federal Excise Taxes on Certain Miscellaneous Goods an d

Services . January 1956 411.8 . 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, byMoney 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 TABLESAt . Estimated Base of a Federal Retail Sales Tax, Fiscal Year 1955

~= =

A2. Estimated Base of a Manufacturers' Excise Tax, Calendar Year 1955 A3.- Estimated Base of a 'Ya :ue Added-Tax, Calendar Year 1954 and 1955

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INTRODUCTION

'-A. Purpose of the Study

The purpose of this study is to find a logical, permanent basis for F :.ieralexcise 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 yof the emergency needs for revenue during the 1930's, World War II, and the Korea nWar. Because they have been rather haphazardly selected, present excises involv ediscrimination among taxpayers and undesirable effects on economic activity .

To find a new basis for excise taxation requires first an examination o fwhat 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 etaxes from 1791 to the present. Chapter III contains an analysis of the variou sissues and considerations involved in excise tax policy ; it is concluded that excise sshould play a more important roie in the Federal tax system . In Chapter IV thecharacteristics of the present excise tax system are examined in some detail andits weaknesses are set out . In Chapter V the alternatives of an extension of th eselective 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 andadministrative problems . These problems have recently been studied in detail b ya subcommittee of the House Ways and Means Committee . The subcommittee'sreport contains recommendations for extensive technical changes in various excisetaxes and in administrative and collzction procedures .

B. Definition of Excise Taxes

The constitutional limitation on Federal direct taxes--that th eir must beapportioned among the states on the basis of population--has tended to produce awide legal definition of indirect taxes. For example :

-

"An indirect tax is a tax upon some right or privilege, and itis also called an excise or occupation tax . 11 1

_ In 1909 Congress passed an "excise" iax based on the net income of corporations .When Miss Perkins, then Secretary of Labor, was testifying on the social securit yprogram before the Committee on Ways and Means in 1935, she referred to the taxon payrolls as an excise tax .2

1. Foster and Creighton Co . v. Graham, 154 Tenn. 412, 285 S .W. 570 (1926), quote din Jerome R . Hellerstein, State and Local Taxation, Cases and Materials, NewYork 1952, p . 18 .

2. Hearings before the Committee on Ways and Means, House of Representatives ,74th Congress, lst SesAion (1935), Economic Security Act, p. 207 .

- 7 -

From the point of view of determining tax policy, the important facts about 3particular taxes are the amount and st tability of their yield, the distribution of theirburden, and their effects . Consequently, taxes which differ significantly in some o rall these respects from other taxes should be put into separate categories . For

- `~_ most purposes, classification according to the "object" on which the tax is levie d

satisfies this criterion_ individual income, corporate income, estates and-gifts .property, employment or payroll, excise or sales . Each of these objects, of course.involves a separate problem of definition . As defined by the Census Bureau, sales_

_taxes are "Taxes . . .based on volume or value of transfers of goods or services . . .

,.\arelated taxes based upon use, storage or production, importation, or consumption

-of goods ." -

-

-

There appears to be no generally accepted distinction between "'excise"~-

--and "sales" taxes . The term "sales" tax is often referred to as one of-generalapplication, while an excise tax i3 perhaps more often a tax on -a particular kind of ;

_

commodity or service . But the terms "general excise" and "selective sales tax"

_are also in common use. The excise tax is also sometimes considered a tax levied - -

'_ -' 'at the manufacturer's level, and a sales tax as one levied at the retail level . But in

`

the Federal budget and tax system we have an important group of "retailers' ex-

=jcises:'

=

The most important distinction is probably that between general and selec -tive excise or sales taxes . The former apply to broad categories of goods andservices, with specified exemptions ; the latter apply only to particular kinds or-

=-narrowly defined categories of goods or services,

W -,-,

CHAPTER II

-

=HISTORICAL DEVELOPMENT OF EXCISE TAXES

=

The Earliest Excises: Hamilton vs . Jefferson

_

_

The earliest excise taxes reflected A'-xander Hamilton's fiscal policies ,

-

which included Federal assumption and funding of state debts, tariff protection for

_manufacturers, and-an internal -revenue system to provide =a stable source of

r, -revenue. -

1

-a

--

-Tae fi=rst excise tax was levied in 1791 . It was a tax on whiskey designed

-

to provide additional revenue required by Federal assumption of state debts .Farmers in western Pennsylvania, Maryland, Virginia and North Carolina rose i n

-`

-

'a rebellion which Washington put down with militia . The whiskey tax and rebellionhelped to=tua,pepple away=from the Federalists and toward Jefferson's t -Republi~:aa"

The whiskey tax produced littl e=revenue, and in 1794 a new Act was passe d

_

taxing carriages, -sales of certain liquors . -manufacture of snuff, the refining o f- :sugar, and auction sales . ' In 1797, -to .help meet new military expenses arising out ,c

of troubles with-Frame, aS".ip Act was passed imposing duties on legal trans-actions .

`

In the election of 1800 .?efferson, with the support of southern planters ,small farmers and tradesmen, •defeated the Federalists . One result of the change

_ in government was that in ISO 2 all the; internal excises were_, abolished (except fo ras41t tax which _was repei1eei-in_~8L?) .

Over the period 1=192-1802-excise taxes produced 7 .1 percent-of total tax

_

coLec;ions (Taale 1) . , u

_

B . Successive Wartime Excise Systems and Peacetime Repeal

' -

The t'Tar of 1812 curtailed customs receipts and forced a return to excisetaxes, as well as direct taxes on property . Congress imposed taxes on carriages, - C_

-refined sugar, distilled spirits, auction sales, some manufactures such as househol dflrniture and watches, and certain scamp duties and license taxes . All of thesewere repealed in 1817, although for many years delayed collections continued t ocome in. For the period _1814-1817, there-excises-produced 14 .1 percent of total

`` :-tax collections. -

-

•

From 1817 until the Civil War no excises were levied . Customs dutieswere the chief source of revenue .

`~

-

1. Sidney Ratner, American Taxation, New York 1942, pp .27-35 .2. -A year later the first direct tax was levied on houses, land and slaves, an d

apportioned among the states .

- 9 -

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Table 1

FEDERAL TAX COLLECTIONS BY SOURCE aI

'Selected Periods 1792-191 '2b. ' ,l_

Amount

Percentage Distributio n

;Direct,

,

Direct, ji .

'Total

Income k

Total

Income Sci

Tax

Profits

Excis ej

cisfYea a c

Collectonsd

Taxese

Taxea

Customs

Collections

Taxes

",faxes Custom qt Millions

~ J

10

1792-1802

85 .8

$

1 .5

$

6.1

$

78 .2

"

100.0

1 .7

,7 .1 91 . 231. 3

133.4

-43

4

132.8

100.0

.2

. 3, -180's- 99 . 51814 -1817

175

-

10 .5

14.1

75 .9

100.0

10 .4

14 .1 75 .5

?

i1818-1862

1,337 .0

2 .3

1 .7

1,333 .0

100.0

2

1,

1 99.?

1

0

A63-1867

1,553 .2

232.4

709 .1

611 .8

100 .0

45 .7 39 . 41868-1898

~ 0,897 .6

157.2

4,074.3

5,666 .1

=

100.0

3 .6

41 .2 57. 2180'9-1902

2,080 .2

--

1,147 .8

832 .3

100 .0

--

0

55 .2 44 .8

t•

T903-1912

`,5,635 .0

83.0

2,565.6

2,986 .4

300.0

1 .5 53 .0

a. -Detail will not necessarily add to totals because of rounding .y

~. Periods selected on the basis of important changes in excise taxes leered . See teat . { ?C

Ended December 31, 1?92-1842; June 30, 1843 and subsequent years ,d.

Data for 1792-1862 are on a warrants issued basis ; data for 1863-1912 are on a collections basis . `

e.

Direct taxes were collected 1800-1837, 1839, 1862-1871, 1873, .876, 1880-1884 and 1886-1888 ; income tr,dprofits taxes were collected 1863-1877, 1881, +884, 1895 ; and the corporation excise tax was collected

c

-

1910-1912 .rf.

'There were no excise tax collections 1849-1862 . "

Source :

Treasury Department .

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In 1862 excise faxes were levied on spirits, beer, tobacco, manufacture dprodur:ts, auction s*Acs, carriages, yachts, billiard tables, plate, slaughtered cattle ,hags and sheep. in -.ddition there were various stamp duties, occupational licenses ,

_' and t,Zxes on r>.ilrrus, steamboats, ferry boats, railroad bonds, banks, insuranc e, ; :campnanies, -advertisements, and legacies . Rates were increased in 1864 and man y

additional `Items added to the tax base. F. C. Howe remarked, "Nothing was omitted ,from ti•.e raw product to the finished commodity. Often an article received a half -;_cosen- iyations ere it reached the consumer ."3 These excises provided 45 .7 percent

Y "ai tC>irr; tax collections during the years 1863-1867, or more than three times the

-4; -r -3uat of receipts from income taxes in the same period.

During the Civil War the first proposals of a general sales tax appeared .^'-

--Proposals were made by various business organizations and by the Commissione r.',of Internal Revenue. In 1864 an amendment providing for a sales tax of one-half of

percent was offered to the Revenue Bill but it was rejected by the House .4

In 1865 Congress appointed a commission to study possible changes in the,/`tax system. Among other things, the commission recommended repeal of most o fthe wartime excise taxes_ By a series of Acts from 1866 to 1870, rates were re-duced and various commodities were removed from the tax base . In 1883 and 189 0there were further reductions in rates and eliminations from the base. The remain-ing taxes were those on spirits, fermented liquors and tobacco . Despite the reduc-tions, excises provided 41 percent of total tax collections from the end of the CivilWar to the outbreak of the Spanish-American war in 1898 : in 1898 excise tax re-ceipts amounted to $171 million as compared with a pea k- of $236 million during the -,-

_

Civil War _

In 1898 to help meet war needs rates were once again increased, variousstamp taxes were introduced and special taxes were imposed on banks, brokers ,theatres, bowling alleys, billiard and poolrooms, and other amusement places_ For

=the period 1899-1902 excises provided 55 .2 percent of total tax receipts . In 190

--

many stamp taxes were repealed or modified, and in 1902 all the Spanish War taxe swere removed. Until 1914 the only excises of importance were those on liquor,

-- - tobacco, oleomargarine, and playing carets . Nevertheless, these taxes provide d^ 45.5 percent of total tax collections 1903-12, an indication of the low level of_Federal expenditures .

A series of Revenue Acts from 1914 to 1918 raised excise tax rates an dextended the excise tax system . The extensive excises in force by 1919 are shownin Table 2. Although excise tax collections almost quadrupled from 1914 to 1919 ,the increasing reliance on the income tax contributed to a six-fold increase in totaltax collections (Table 3), so that the excise share fell from 46 .0 percent in 1914 to28 .2 percent in 1919 (Table 4) . This new pattern in wartime tax sources was to b erepeated during World War II and the Korean War period .

3. Quoted by D . R. Dewey, Financial History of the United States, (New York 1939) ,p. 303 .

4. "History of Federal Sales Tax Proposals," Division of Tax Research, Treasury

_Department, Hearings before the Committee on Ways and Means, House of Rep-resentatives, 78th Congress, 1st Session, Revenue Revision of 1943, p. 1097.

Table 2

''

_

. . .FEDERAL EXCISE TAX RATES ON SELECT) CD 1TL 'MS a

As of December $1, Selected Years 1913 . 1955

i~

.

1913 1919 1924 1924 1937 1939 1944 1953 195 5

(Dollars, except where percentage* are indicated )Liquor Taxes - -

Distilled Spirits (per proof or wine gallon 1 .10 2020 Z .ZO 1 .13 1 .10 2,25 9,00 1430 1 .150Wines, Cordials, stc .(per "

"

of r

« 016•

Z .20 116 . 440 ,04 .

1 .10 904•

1 .10 .05 . 2 .25 .15 . 9 .00 017 . 10 .50 .17 . 10 .50Fermented Malt Liquors (per barrel) 1 .00 6,00 6 .00 6 .00 6 .00 5 .00 4 .00 9 .00 9 .0 0

Tobacco Cigars . Larse (per thousand) 3 .00 4 .00 .15 .00 4,00 .15 .00 x .00 .13 .50 2 .00 .13 .50 2,00.13 .5 0 2 .50 .20,OQ x,SQ•x0 .0Q x,50•xO .O Q

Cigarettes (per thousand) (3 tbs . or Irma andmore than 3 tbs . respectively) 1 .x5, 3 .60 3 .00,

7 .40 3 .00,

7 .x0 3,00,

7 .ZG 3 .00

7 .20 1,00

7 .20 3 .60.

4 .40 4 .00,

4 .40 4 .00,

4 .40Tobacco and Snuff (per pound) .06 in .14 As ,15 as ,14 .10 t o

Documentary, etc ., Stamp Taxe sConveyances (per $500, or additionni (rac -

tion, if value is over ;100) .50 .50 • 5Q ,50 ,55 ,55 .55Issuance of Bonds and Capital Stock (per 5100) • .05 .05 .05 .10 ,10 At O t ,i lIssuance of Stork Without Par or Pace Value ,

and Actual Value under :100 (pnrshare.G 51919 ; pee SZO thereafter)

" •101 1 .01 Ax .Ox -,03 003 00 3

Transfer of Bonds, Capital Stack (per $ 10 0or fraction or per share, respectively) - . .Ox -, .02 - . .Ox ,04,

,05 .04,

,05 105,

.06 .05 .

.06 005,

00 6i

Silver Bullion Sales or Transfers (profits) • • • 5096 50x, 50X► 50 %Sales of Produce for Future Delivery (per

N

$100 or fraction) • 102 .01 001 .O SPassage Tickets over =10 Mold for P o tasag e

by Vessel to a Foreign Port 1 .00. 5,00 1,00 .

5 .00 1,00 .

5,00 1 .00. 5 .00 1 .00 . 5 .00 1 .10 .

5 .50 -P1Kying Cards (per package of not mor e

than 54) ;OZ .04 .10 010 .10 "

010 113 .13 .1 3Manufacturers' Excise Taxe s

Lubricating Oils (per gallon) 004 ` 10 4" .06 .06 110 6Matches . While, Phosphorous(per hundred).

;,Q2 102 ,QS 001 ,00

1 020 0

Matches . in generrl

thousand) 002 102 .02Gasoline (per gallon) 101 .01 .015 .02 ,O SElectrical Energy (sale price) « 3% 3% 3j %Tires and Inner Tubes (sale price, 1919. 1924 ;

per pound, respectively. 1932 .1955) • 576 Z +X► ,Oils ,

.0e .0125,

.04 .05,

,04 'Post

Q 9Automobile Trucks (mate price) 3T+ 3% ~ ll

► 1%M.409

474 8%!Automobiles and Motorcycles (sale

rice)Automobile Accessories (male price

• 5% 5% 3% 3'16 I09 10x,574 Z + 74 294 SX. 5'16 8X. 6 %

Radios and Accessories (sale price) • 5X► , 594 10'J6 IOx, 10 %Refrigerators (mechanical household )

(sale price) 5X. 5% 10% 10% 5 %Firearms . Shells, Cartridges (sale price) Pistols

Revolvers10 %1096

10X►10X.

10y10%

1 0t'Q4

ll~(,1174

11

1,1171. 11~(,and

(sale price) IQX. 109ESporting Goad* (male price) • 10X• • 10% 10% 15% 10 %Musical Instruments andphonographs(saleprice) 5% 10% 10% 10 %Records (male price) - 5% • « 596 1094 1076 10X,Electric, Gam . and Oil Appliance *(*at* price) 1094 1094 5 %Business and Store Machines (male price) ,,« . 10X► 10% 10 %Camera* and Photographic Apparatu s

(sate price) • 1094 1094 « 1094 2576 x096 1096Photographic Film (sale price) • 574 ;50 . .. . 15% 20% 10%Mixed Flour (per barrel containing 99 .196 lbs .) ,04 004 .

4 , Q4 004 004

Table 2 (Continued )FEDERAL EXCISE TAX RATES ON SELZOTED ITEM S

As of December 31, Selected Years 1913 . 195 4

1913

1919 1914 1928

1932 1939 1944 1951 195 5

(Dollars, except where percentages are Indicated )Manufacturers' Excise Taxes (cont'd )

Automatic Slot Vending and Vending Weigh -inj Machines (sale price, respectively) 5%, 10% 5%, 5 %

Candy (sale price) 5% 2 %Soft Drinks (various) various • variou s

Miscellaneous Excise Taxe sLocal Telephone Service (amount charged) " 15% ls% 10 %

Cable and Radio Messages (amount charge d:944, 1951; previously per messagv) •

010 « 110 010 25% 15% 10 %Tall Telephone (amount charged, 1944, 1951 ;

previously per message) 110 • ,t0-

.10 Ao• 120 2 q~ 25% 10 %-Telop

nh Messages (per message, 1919 ;amount char ed, 1932 .1955) •

.10 - «

S% 24% 10% 10 %Leased Wires amount charged) 10% 5% 15% 25% 25% 10 %Transportation of Oil by Pipe Line(am'tpaid) 0% 4% 4% 4 +% 4 +% 4+ %Bowling Alleys, Pool Tables(por unit,por year) 10,00 10 .00 • 20 .00 20 .00 20 .0 0Transportations of Persons (am't paid) 8'16 • • 15% 157E 10 %Transparext[on of Property (am't paid)Leare a( Safe Deposit Boxes (am't collected)

371 •

10% 1Q%3 %

10%3 %

20%3 %

10 %Admissions (for every 100 or fraction, 1919 -

1939; S4 or major fraction, 1944 . 1951 ;104 . 1955) •

.01 101 001

.01 801 ,02 ,02 ,o lLosses of Boxes or Seats (am't for whic h

similar accommodations are sold) «

40% 10% 10%

10% cAo% 20% 20% 10 %Cabarets, Roo( Gardens, etc . (for every 10 0

or fraction of 20% of total charge ,1919-1939 ; amount paid, 1944 .19SS) •

tot$ 0015 0015

oil ,015 20% 20% 10 %Dues and Initiation Fees (am't paid) 10% 10% 10%

10% 10% 20% 20% 10 %Oloomargarine (uncolored, colored, respec . 0

tively . per pound) .Q02S .

010

tools,

010 tools,

Ao ,0025,

410

0001s t

.10 00025,

.10 .0025,

.10 •Processed and Adultered Butter

(respectively, per pound) .0025,

.10

tools,

010 tools,

010 tools,

.10

tools,

.10 .0025,

.10 .0015,

.10 .0025

.10 .0015,

.1 0Filled Choose, Domestic and Imporis, ;

(respectively, per pound, in addition toimport duties) 001,

108

101,

108 101,

.08 101,

.08

001,

108 ,01,

too .01,

.o g 101,

.01 101,

.0 4Use of Boats (per foot, according to sine,

1919 .1924 ; per boat according to site o rtype, 1932 ; length, 1944) 1 .00 .4 .00 1 .00 .4 .00 •

10,00 .200, 5,00 .100 ,Coin-Operated Amusement and Gamblin g

Devices (per unit, per year respectively) . . . -

• 10,00, 100, 10 .00, 250 . 10 .00,150 ,Retailers' Excise Taxe s

Jewelry (sale price) 0 . . . .3 03, . 5% S% b~b~

• 10% 20% 10 %Furs (sale price) (b) 20% 20% 10%Toilet Preparations (per 250 or fraction, 1919 ;

sale price thereafter) 001 (b) (b) 20% 20% 10%Luggage (sale price) 10% 10% 20% 10 %Various Wearing Apparel (sale price) «

10% • • •A . In addition to the rates given, several of the categories are also subject to special taxes on manufacturers, processors or dealers ; for further details an d

definition of taxable commodities, exemptions, etc ., see Annual Re ore a( the Secretor of the Treasury for 1940 and 1950, and Federal Excise Tax Data ,January 1955, prepared by the Staff of the Joint Committee on n erna Revenue Taxation .

—

,'

aplll~

16 tallied to a to of 1495 " ressufaelew l e orki1iVw"3 TfasaA Departmat.

Table 3

FEDERAL TAX COLLECTIONS BY SOURCE,

Fiscal Years 1913-1955r (Millions)

Income and

ExciseYear Total Profits Taxes

Taxes Y

Customs Otherb1913 663 3S

; 309 $319 -

_1914 672 71

304 -

292 -1915 SZ5 80

33S 210 -1916 726 125

388 213 -1917 1.035 387

40S 226 17

1918 3.879 2.852

=

774 180 721919 4.035 2.601

1 .139 184 1111920 5.730

_3.957

1 .254 323 1971921 4.904 -

3.228

1.132 309 2361922 3.554 2.087

891 356 220

a. ac aaaaa ac~cNY~ •.VaaG~. •LVUa ~,a+sa a.YaaVaHa •Raa, -v l1~ wsaaa a7=V• a+.fa•you auacaH~JIV }'J Sac aa k

insurance act taxes . Detail will not necessarily add to totals because of rounding .b. Estate and gift, capital stock, employment, and railroad unemployment insurance act taxes .

Source: Treasury Department .

1923 3.184 1.691 722 562 2081924 3.342 1 .842 764 546 1901925 3.132 1 .762 624 543 1991926 3.415 -1 .974 64S S79 2171927 3.471 =

2 .220 536 606 109

1928 0' 3 .360 2.175 547 569 691929 3.541 -

2.331 540 602 681930 3.627 2.410 365 587 651931 2.807 1 .860 520 378 481932 1.885 1.057 454 328 47

1933 1 .871 747 839 2SI 341934 2.986 820 1 .659 313 194

_

1935 -3.610 1 .106 1.857 343 3031936 3.881 1.427 1.593 387 4741937 5.121 2.180 1.746 486 709

1938 6.003 2.629 1.716 359 1.2991939 5 .481 4185 1.749 319 1.2281940 3.721 2.130 1.867 349 1.3751941 7.812 3.471 -2,381 392 1 .5681942 13. SO4 8.007 3.123 389 1 .985

1943 22.796 16.299 3.795 324 2.3781944 40.672 33.028 4.461 431 Z,7521945 44.287 35.062 5.945 3SS 2.9261946 41 .237 31.258 6.684 435 2.8591947 39.744 29.x20 7.283 494 2.947

1948 42.431 31 .172 7.410 422 3.4281949 40.857 29.605 7.579 384 3.2891950 39.399 28.008 7.598 423 3.3701951 51 .094 37.385 8.704 624 4.3821952 65.586 50.741 8.971 551 5 .323

1953 70.325 54.131 9.946 613 5.6351954 70.510 54.359 9.517 S62 6.0711955 66.919 49.915 9.218 606 7.180

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Table 4

FEDERAL TAX COLLECTIONS BY SOURCEaPercentage DistributionFiscal Years 1913-1955

Income and

ExciseYear

Total

Profits Taxes

Taxes

Customs

Otherb

1913 100.01914 100.01915 100.01916 100.01917 100.0

1918 100.01919 100.01920 100.0-921 100.0

- 1922 100.0

I923 100.01924 100.0

-

1925 100.01926 100.01927 100.0

1928 100.01929 100.01930 100.01931 100.01932 100.0

1933 100 .0-

1934 100.01935 i00.91936 100.01937 100.0

1938 100.0I939 100.01940 100.01941 100.01942 100.0

1943 100.0- 1944 100.0

1945 100 .01946 --

100 .01947 100.0

1948 -

100 .01949 100.01950 100.01951 100.01952 100.0

1953 100.01954 100 .01955 100 .0

5.3 46_6 48_1

-I0_6 46.0 43. 512.8 53.6 33 .6172 33.4 29 .337_4 39_1 21_8

73.5

-- 20 .0 4 .664.5 28_2 4 .669 .1 ZI_9 5 .665.8

_ 23_1 6 .358.7 25_1 10 . 0

53 .1 22_'9 17 .755_1 22.9 16_356.3 19_9 17 .557 .8 18_9 17 . 064 .0 I5.4 -17_5

64.7 16.3 -

16 . 965 .8 15.2 17 . 066 .4 15.6 16266.3 I8.5 13 .556.1 24.1 17_4

31 .9

= 44 .8 13 .427.5 55_6 10330.6 51 .4 9 . 536.8 41 .0 10_042.6 34 .1 9 . 5

43 .8 28.6 6 . 039 .9 31-9 5 . 837.2 32.6 6 . 144 .4 30 .5 5 . 059 .3 Z3_1 2 . 9

71 .5 16.6 1 .481 .2 11 .0 1 . 179 .2 13 .4 . 875 .8 16.2 I . I73 .0 18 .3 I .2

73 .5 17 .5 I . 072 .5 18.6 . 971 .1 19 .3 1 . 173 .2 17 .0 I .Z77.4 13 .7 .8

77 .0 ^ 14 .1 . 977 .1 13 .5 . 874 .6 13 .f: .9

I_b

I . 92 .83 .44 .86_2

6 . 55 . 76 .46 .43_ I

2 . 11 .91 .82 .82 . 5

1 .86 . 58 .4

12 .213 . 8

21 .622 .424 . 020 . 114_7

10 .46 .86 . 66 . 97 .4

8. 18 .08 .68 .68 . 1

8 .08 . 6

10 . 7

a. Internal revenue collections plus customs and, beginning with 1940, railroad unemploymentinsurance act taxes . Detail will not necessarily add to totals because of rounding .

b. Estate and gift . capital stock, employment. and railroad unemployment insurance act taxes .

Source: Treasury Department .

-15 -

Table 5

FEDERAL EXCISE TAX COLLECTIONS BY MAJOR SOURCEa

Fiscal Years 1913-19SS(Millions)

Manufacturers' Retailers "Year Total Liquor Tobacco Excises Excises All Other

1913 309 ; 230 =

77 (b) - ;

21914 309 226 s0 (b) - 2

,1915 335 224 80 (b) - 321916 388 247 88 ;

4 - 481917 40S -,

284 103 1 - 17

1918 774 444 156 37 - 1381919 1.139 483 206 77 2 3701920 1 .254 140 296 223 45 5501921 1.132 83 255 184 46 5641922 891 46 271 146 28 400

1923 722 30 309 164 21 1981924 764 28 326 178 23 210I925 624 Z6 345

= 130 10 1121926 645 26 371 142 8 981927 536 2I 376 67 - 72

1928 547 IS 396 S2 - 831929 540 13 434 6 - 871930 565 12 450 3 - 1001931 SZO 10 444 (c) - 651932 4S4 9 399 (c) - 46

=

1933 -

839 43 403 =

244 - - 1491934 - I.Z88 2S9 `425 385 - 218

_1935 1.346 411 459 342 - 1341936 1.531 505 501 383 - 1421937 1.746 594 SS2 45I

_ - 149

1938 1.716 S68 568 417 - 1631939 1.749 588 580 397 - 1851940 1.867 624 608 447 - 1881941 2.381 820 698 617 - 2461942 3.123 1 .048 ;81 772 80 442

1943 3.795 1,4Z3 924 505 165 7771944 4.461 1 .618 988 503 US 1 .126

-1945 5 .945 2.310 932 783 424 1 .4961946 6.684 2.526 1.166 923 492 - 1 .5781947 7.283 2.475 1.238 1 .425 514 1.631

1948 7.410 2.255 1.300 1 .649 470 1.7351949 7.579 2.211 1 .322 1.772 449 1.826

=

-1950 7.598 2.214 1.328 1 .836 409 1.8061951 8.704 2.547 1.380 2.384 Cx-457 1 .9361952 8.971 2.549 I,565 2.349 476 2.032

1953 9.946 2.781 1 .655 2.859 496 2.1551954 9.532 2.798 1 .581 2.691 438 2.0241955 9 .218 2.743 1 .571 Z.876 292 1 .736

-a. Detail will not necessarily add to totals because of rounding .b. Manufacturers' excise taxes unsegregable from "all other" excises . _c. Less than ;500,000 .

Source : Treasury Department .

-16 -

With the return of peace, rates were again reduced and many taxes re -moved entirely. In the late 1920's tobacco taxes accounted for the greater part ofexcise tax collections (Table 5) . In the early 1920's various bills were introduce dand there was a good deal of campaigning for a general sales tax by some busines sgroups. Opposition was str ng on the part of farmers, labor and certain business -men. In 1921 the Senate Finance Committee held hearings at which "more than ascore of witnesses testified on each side of the issue :'S None of the proposals wasacted on by the House Ways and :deans Committee or Senate Finance Committee,and the bills introduced in Congress were defeated .

C. A Continuing Emergency Excise Tax System

In 1932 a bill to impose a 225 percent manufacturers' sales tax was re -ported favorably by the Ways and Means Committee but was voted down in the Hous edespite support from President Hoover . A battle was waged in Congress betwee nadvocates of a sales tax and advocates of higher income taxes . The Revenue Act of1932 was something of a compromise, as is indicated by Table 6.

Table 6

ESTIMATED REVENUE EFFECT OF THE REVENUE ACT OF 193 2

Fiscal Year 193 3

(minions)

Total Increase in Revenue

$1,118.5

Excise Taxes

654.5Income Taxes

299.0Gift Tax

5 .0

= - "Postal Revenues

160.0

Source: Treasury Department -

Although a general sales tax was not adopted, extensive selective excises were in-troduced. Most of the present manufacturers' excise taxes, the taxes on communi-cations, and certain miscellaneous excises date from the :Revenue Act of 1932. The

_

=1932 -tax increase was one of the largest-peacetime increases in history.

During World War II, excise tax rates were considerably increased, variou snew taxes were introduced and additional items added to the base of existing excises.The most important additions were the taxes on the transportation of persons an dproperty, the retailers' excises on jewelry, furs, toilet preparations and luggage, 6and the extension of manufacturers' excises to electric, gas and oil appliances ,

5. Ibid ., p. 1098.

6. Taxes on jewelry and toilet preparations had been imposed under the Rev :siueAct of 1932, but they were repealed in 1936 and 1938 .

- 17 -

musical instruments, sporting goods,, etc . Large increases were made in the rate scI taxes on liquor, automobiles, radios. communications, amusements, while some _taxes, chiefly stamp and tobacco taxes, were increased relatively little (Tab- .e 2) .As in World War I. however, the increases in income taxes were more significant ,with the result that the excise share in total tax collections fell to a low of 11 per -cent in the fiscal year 1944 .

After World War II important excise reductions were postponed eve nthough substantial income tax reductions were passed in 1945 and 1948 . A Housebill providing for large excise tax reductions was passed in the spring of 1950, bu tthis bill had to be revised as a result of the Korean War . Instead of reductions, theRevenue Act of 1950 provided for some increases in excise taxes, the most impor-tant of which were the extension of the tax on radios to television sets and of thetax on electric, gas and oil appliances to quick-freeze units .

The Revenue Act of 1951 brought further increases in rates and numerou schanges in the bases of certain excises . TI;e taxes on liquor, tobacco, and highwayusers were raised to an all-time high (Table 2) . Among other changes were thefollowing: The tax on household appliances was extended to 16 new items, while 1 9items of a type used mainly by children were removed from the base of the tax o nsporting goods . The tax on electrical energy was repealed, while taxes were ap-plied to diesel fuel for highway vehicles, fountain pens, mechanical pencils, ciga rand cigarette lighters . Commodities used for business purposes were eliminate dfrom the base of some of the manufacturers' excise taxes . The tax on admissionswas removed in cases where all proceeds inure to religious, charitable and educa-tional organizations . A tax was imposed on wagers and as occupational tax on per-sons accepting wagers.

_ The excise tax increases imposed during the Korean War were originall yscheduled to expire April 1, 1954. The Excise Tax Reduction Act of 1954, however,postponed for one year the reductions which were scheduled in the taxes on liquor ,tobacco, and highway users, and instead reduced other exciso tax rates to 10 per -cent where they previously had exceeded that level . These reductions were mainlyin the retailers' excises- on furs, jewelry, luggage, and toilet preparations, in vari-ous manufacturers' -xcises, and in the taxes on communications, transportation ofpersons, and admissions.

Chiefly because of the pressure of heavy defense spending, the scheduledexcise (and corporation income) tax reductions were postponed for another year i n1955 and again in 1956 . The Korean War rates on liquor, tobacco, gasoline, auto -_rnobiles, etc ., are now scheduled to expire April 1, 1957 .

In summary, the present excise tax system is essentially the result of

1- emergency needs for revenue . It has been patched up and revised occasionally bu tlittle has been done to provide a permanent excise system since the first excis etax in 1791 .

- 18 -

- CHAPTER M

DETERNMING THE ROLE OF EXCISE TAXES IN THE FEDERAL TAX SYSTEM

'his chapter is concerned with the basic question, To what extent should=

the Federal government rely on excise taxes? There are several important issue sand considerations involved in determining the role of excise taxes_ We considerfirst the question of the distribution of the tax burden--the progressivity or re -

_ gress:vity of the tax system, which is generally given a central place in discussion sof the role of excise taxes_ We then examine other important considerations of taxpolicy,__and finally, look at the special advantages of excise taxes _

A- Distribution of the Tax Burden by Income Glasses

1_ Distribution of the Excise Tax Burden

The most common argument offered against excise taxes is that they areregressive, that is to say . that the burden of these taxes falls more heavily on th elow income groups than on the high income groups .

Recent statistical studies have shown to the contrary that the burden o fexcise taxes is approximately proportional over the range of income in which thevast majority of taxpayers are found .

Professor R. A. Musgrave and Dr . Rufus Tucker both made studies of th edistribution of the total tax burden by income classes for 1948 . Although Musgraveand Tucker started from considerably different points of view with regard to th eshifting of certain taxes, the definition of income, and statistical methodology, the yreached fairly close agreement. The agreement was particularly close after eachhad made various adjustments and revisions in response to criticisms of the other .The distribution of the total tax burden according to these estimates is shown in

=Table 7. For 1948 the two estimates are remarkably close together for the incom eclasses below $5,000 ; at higher income levels Tucker's estimates indicate a heavic- rtax burden and a greater degree of progressivity .l

The distribution of the Federal excise tax burden is shown in Table 8 .Both estimates for 1948 indicate that the burden of excises is approximately pro-portional to income at least up to the $7,500 level, and according to Tucker' sestimates at least up to $15,000 . Tucker's estimates show that in 1948 the burde nof Federal excises was about 4 .5 percent of the income of families with incomes

_from $1,000 to $2,000, and about 4 .4 percent of the income of families with income sfrom $10,000 to $15,000 . Musgrave's estimates for 1954 show some regression i n

1 . The divergence in the estimates at high income levels is largely accounted fo rby the fact that Musgrave used a broader definition of income than din Tucker .The major difference is that Musgrave imputed undistributed profits as incom eto shareholders ; since Tucker did not include undistributed profits in the incomeof shareholders, his estimates show a higher percentage of taxes to income inthe upper i-.come _groups .

- 19 -

Table 7

TOTAL TAX BURDEN AS A PERCENTAGE OF TOTAL INCOMEa

By Money Income Classes

Calendar Years 1948 and 1954

Money

1948

Income

1954

Classes

Tucker's

Musgrave's

Musgrave's(Thousands)

Estimates

Estimatesb

Estimates

All Classes

29.7%

27.2%

30.4%

Under $1

18.7

_

17.9

23.4$1 _$Z

20.8

20.52- 3

23.9

24.4

25.53- 4

25.0

25.3

26.24- 5

26.3

24.6

- 26.8

5 - 7.5

28 .3

23.8

28 .97.5 and over

44.8

36.4

36.7

7 .5 - 10

31 .1

(c)

30.610 and over

(c)

_(c)

392

10 - Is

34.5

(c)

(c)

15 - 20

36.5

(c)

(c)20 and over

61 .6

(c)

(c)

a. Money income plus income in kind plus imputed income . The latter _is the unshifted part of the corporation income tax in Tucker' sestimates and, in addition, undistributed corporate profits inMusgrave's estimates . There are also minor differences in thedefinition of money and non-money income .

b. As revised in "Rejoinder to Dr . Tucker."c. Not available .

Source: R. S. Tucker, "Distribution of Tax Burdens in 1948," NationalTax Journal, September 1951 . R. A. Musgrave, for 1948estimates, "Rejoinder to Dr . Tucker," National Tax Journal,March 1952; for 1954 estimates, "The Incidence of the TaxStructure and Its Effects on Consumption," in Federal TaxPolicy for Economic Growth and Stability, papers submittedby panelists appearing before the Subcommittee on Tax Policy,Joint Committee on the Economic Report, 84th Congress, 1s tSession, Nov . 1955.

- 20 -