Key Findings
- The tax base is shrinking for traditional excise taxes, including tobacco, alcohol, and motor fuels. These sources of revenue are unstable and work poorly as a source to fund growing expenditure programs.
- Newer excise taxes—including those on carbon, cannabis, alternative tobacco products, ride-sharing, and plastics—have the potential to significantly affect global trade and increase the percent of tax revenue generated by excise taxes.
- For most excise taxes, the best choice of tax base is the externality-causing agent, as that provides the best target for external costs.
- Excise taxes should ideally be levied early in the value chain. Limiting the number of taxpayers lowers the cost of enforcement and improves compliance, making tax implementation less costly and more
- Revenues from excise taxes should be spent on those social expenses (e.g., infrastructure costs associated with driving, and enforcement costs related to alcohol). Excise taxes should not be levied to raise general fund revenue because the tax bases are typically narrow and
- Excise taxes should take harm reduction into account to minimize the costs of excise tax policy and maximize well-being.
Source Tax Foundation
