Excise Taxes

Source: Howlett, Michael. Designing public policies: Principles and instruments. Routledge, 2010.

 

Excise taxes are another treasure-based tool, one that acts as a disincentive to individuals, organizations, and groups to undertake specific actions and activities.  Cnossen (2005:2) defines these as ‘all selective taxes and related levies and charges on good and services’.  They have several general purposes: (1) to raise revenue for general purposes, (2) to offset ‘external costs’, (3) to discourage consumption, and (4) to pay for public goods (Nowlan 1994).

 

Raising revenue through taxes is, of course, the oldest technique of government practised, from taxes placed on road use by the Romans to the tea tax US colonists rebelled against at the Boston Tea Party.  In this form, excise taxes typically supported legal modes of governance.  Using taxes to offset costs of production – to pay for pollution clean-up or health consequences of tobacco use in order to correct production or consumption ‘externalities’ like pollution or carbon emissions which otherwise would be passed onto the general public – is a much newer form and is more compatible with market governance modes (Mandell 2008; Toke 2008; Pope and Owen 2009).  A similar effort involves so-called ‘vice taxes’ for activities such as gambling, alcohol consumption, lotteries, or, more frequently in recent years, various forms of ‘virtuous’ ‘green’ taxes such as those designed to govern the cost of recycling car batteries or used oil or paint, or even returnable bottle deposits, all designed to offset the costs of the activities concerned (Cnossen 2005; Eloi 2009).  The use of motor fuel taxes to cover the cost of road construction or mass transit is an example of the fourth of Nowlan’s purposes.

 

Such taxes generally discourage the taxed activity by raising its price.  This, of course, can be a mixed blessing for activities such as public transit and can often result in unintended consequences for items taxed in order to raise revenues, both in terms of taxpayer resistance and upset, and in the unintended encouragement of the increased use of non-taxed items or substitute goods and services.  They are generally inexpensive to establish, although they require an extensive revenue collection and enforcement presence to avoid evasion, and can be either highly visible, and if added onto prices, or almost invisible, if included with posted prices.  They can be targeted to specific kinds of goods and services and set up to be highly automated.  They are generally considered to be quite intrusive by those paying them, however, which is the main reason they are often excluded from policy designs.

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