Not-So-Sweet Excise Taxes


New NCPA Analysis Shows Excise Taxes are Inefficient, Ineffective and Unfair

DALLAS, TX (July 1, 2009) - The proposal by Congress and the Obama Administration to impose excise taxes on soft drinks and increase them on alcohol to fund health care reform and energy technology development won't accomplish their goal of changing unhealthy behavior or increasing revenue, according to a new report by the National Center for Policy Analysis. Instead, according to the NCPA report, it will inflict a burden on the poor.  

            "Although there are claims that excise taxes are more efficient than other taxes, the evidence shows that these taxes are often ineffective, inefficient and unfair," said Sean Shurtleff, NCPA Policy Analyst and author of the report. "Low income families spend more of their money on products subject to excise taxes than higher income families, making excise taxes very regressive."

Proponents of an estimated tax of 3 cents per 12 ounces on soft drinks believe the tax will eventually discourage people from consuming them.  Unfortunately, excise taxes fail to produce the desired behavioral changes, as peoples' consumption is relatively insensitive to price changes, and people are generally reluctant to give up certain products, including soft drinks and junk food, Shurtleff points out.

On the other hand, if the price of a product rises high enough to discourage consumption, an excise tax hike will not produce the expected revenue increase to fund health care and energy programs. Instead of consuming the products that have been taxed, people may begin substituting less expensive products for them. For instance, soda drinkers may turn to cheaper sugary drinks, Shurtleff found.

"There is little if any benefit that will come from imposing excise taxes on various products," said Shurtleff. "In fact, it will be a disadvantage to the poor who spend a larger portion of their income on the very products that may be taxed. A better approach is to balance the budget and reallocate resources from other programs toward priorities like health care and energy development."

For more information or to arrange an interview with Mr. Shurtleff, please contact Leah Gipson. To see the full report, log on to http://www.ncpa.org/sub/dpd/index.php?Article_ID=18152.