Alcohol Excise Taxes

Simplifying Rates Can Enhance Economic and Administrative Efficiency Gao ID: GGD-90-123 September 27, 1990

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.


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