Were Federal Excise Taxes Eliminated?
Federal Excise Taxes are specific taxes imposed by the U.S. government on the sale or use of particular goods, services, or activities. Unlike income or payroll taxes, excise taxes are often included in the price of products like gasoline, alcohol, tobacco, and air travel. The IRS collects these taxes either from manufacturers, retailers, or consumers, depending on the type of excise tax involved.
According to the IRS, these taxes help fund various government initiatives, from infrastructure to public health.
Evolution of Federal Excise Tax
Federal excise taxes date back to the founding of the United States. The first major excise tax was introduced in 1791 on distilled spirits, triggering the Whiskey Rebellion. Over the years, these taxes expanded and evolved:
During wars, especially the Civil War and World War I & II, excise taxes became a major revenue source.
In 1917, excise taxes accounted for over 30% of all federal revenue.
The Revenue Act of 1932 significantly increased excise taxes to raise government funds during the Great Depression.
By the mid-20th century, excise taxes on items like telephone services, automobiles, and air travel were common.
Despite their smaller role now compared to income and payroll taxes, excise taxes remain an important targeted funding tool, such as for the Highway Trust Fund (via gasoline tax) and PCORI Fund (via health insurance fees).
Is the Federal Excise Tax Eliminated?
No, federal excise taxes have not been eliminated. They are still in effect today and collected regularly.
Different excise taxes apply to different items and industries. For example:
The federal gas tax of 18.4 cents per gallon (last raised in 1993) remains active.
The air transportation tax, alcohol and tobacco taxes, and firearms and ammunition excise tax (FAET) are also ongoing.
The PCORI Fee, reported annually on IRS Form 720, is effective through 2029 under the current law.
So, although the scope and percentage may have shifted over time, excise taxes are still very much a part of the federal tax system.
Are Federal Excise Taxes – Progressive or Regressive?
Let’s first understand these terms:
Progressive Tax: A tax where the rate increases as income increases—higher earners pay a larger percentage of their income.
Regressive Tax: A tax that takes a larger percentage of income from low-income earners than from high-income earners.
Federal excise taxes are generally considered regressive.
This is because the tax is the same regardless of income. For example, a $1 tobacco tax takes up a larger portion of income for a low-wage worker than for a high-income individual. According to the Tax Policy Center, excise taxes fall more heavily on lower-income households.
However, as noted in Investopedia, excise taxes can be progressive if they are levied on luxury goods—things typically purchased by wealthier individuals. For example, a tax on private jet fuel or luxury yachts may have a more progressive effect.
Conclusion
So, were federal excise taxes eliminated? No—they're still here. Although their share in total tax revenue has declined, federal excise taxes continue to fund vital services like transportation, public health, and environmental programs.
These taxes tend to be regressive because they impose a flat rate regardless of income, affecting lower-income groups more significantly. However, when applied to luxury goods, they can take on a more progressive character.
Understanding the nature and role of excise taxes helps us better grasp how the U.S. tax system distributes its burden—and why reforms often seek to balance fairness with functionality.