Friday Interview: Excise Taxes Explored
Candidates spoke during the campaign season about the federal income tax, payroll tax, and capital gains tax. They said little about excise taxes. Kristina Rasmussen, director of government affairs for the National Taxpayers Union, contends those excise taxes affect people every day in ways they don’t even realize. She discussed the issue with Mitch Kokai for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Kokai: You made an interesting presentation recently while visiting Raleigh. You talked about the way that we get nickel-and-dimed with taxes in ways that we don’t even think about. What are some of the things we should keep in mind about taxes that we don’t even see?
Rasmussen: The government likes to get us in many ways, and one way that the federal government tries to take more of our money is through excise taxes. We hear a lot about income taxes. They matter because they take a lot of our money. But excise taxes are special taxes on certain products or activities or services. We don’t think about them that often because we don’t usually see them. I’ll give you a few examples. Every single time you buy a gallon of gas you send 18.4 cents to the federal government. On a 15-gallon fill-up, that is a couple of bucks. If you are buying diesel, it is even higher – almost 25 cents per gallon. But it goes just beyond federal fuel taxes. There are excise taxes on telecommunications, on guns, on a variety of products.
Kokai: You have described taxpayer Joe and taxpayer Jane going through somewhat typical days and all of the various taxes they’re running into.
Rasmussen: Absolutely, and the example I gave with taxpayer Jane, was [her] going out to get her child vaccinated for school because the government tells us we should do that. There is actually a federal excise tax on vaccinations, which I think is rather incredible. The government tells you to get your child this shot, and then they tax you for it. And with the example of taxpayer Joe, [he] is talking about how he wanted to go visit a friend on a fishing trip and he had to pay all these federal flight taxes for the airline ticket he purchased. He also had to pay taxes on sport fishing equipment and electric outboard motors. These are things we don’t think about the federal government taxing. We pay state sales tax on them quite often, but the federal government tries to hit us up again.
Kokai: Now why is it a good idea for people to keep taxes like these in mind and not just the income taxes and Social Security taxes that you see more often?
Rasmussen: Some politicians like to talk about holding the line on taxes or even cutting taxes, but then they try to make up for the revenue in other areas – little taxes and fees that, while they may appear insignificant at first glance, really do add up. So when we are talking about tax reform, we need to keep the big taxes in mind – sales taxes, income taxes – but we cannot forget about excise taxes.
Kokai: Is it easier, do you think, for politicians to squeak these types of taxes through because people aren’t paying as close attention to them?
Rasmussen: Or they’ll argue that it is a sin tax and they are trying to discourage the activity with more taxes. You see that with tobacco taxes, alcohol taxes, but I would argue that a lot of the products and services they tax are not a sin, such as owning a gun. Why should the federal government levy an excise tax on sport fishing equipment or owning a gun, or archery? A bow and arrow is taxed by the federal government. And they will also argue that these taxes are levied because they go to support specific programs. That is not always true. A lot of these excise taxes go into a general treasury fund, and spending for all of these different programs come out of that fund. So they are trying to argue that there is a direct connection between a certain government service and that fee, but that is not always the case.
Kokai: Now you mentioned an item – and this brings up another point that you made in your presentation – that the government, in setting some of these excise taxes, is really choosing between different types of activities that it prefers and the ones that it doesn’t prefer levying a tax on. Why is that a problem?
Rasmussen: We think that government tax policies should be as neutral as possible. The government shouldn’t pick private sector winners and losers. I can’t for the life of me understand why archery is taxed but basketball isn’t. Why is owning a gun and sportsmanship taxed but, say, riding a horse is not? So by levying these taxes, and essentially punishing folks for pursuing these activities, the government is picking winners and losers. We would rather see one low rate applied to everybody, and getting rid of most of these silly excise taxes.
Kokai: Do you ever worry that when you make this argument, that someone in government will say, “Okay, we can tax these other things, too”?
Rasmussen: You know, you always do face that problem. But the good thing is that when people do finally hear about these taxes, they get kind of steamed because they do feel like they are getting nickel-and-dimed. So, it is a good thing to talk about these taxes, because we can push for repeal fairly easily.
Kokai: Now the National Taxpayers Union has been around since the late 1960s, is that correct?
Rasmussen: That’s right. We are the nation’s largest and oldest taxpayer group, founded in 1969.
Kokai: Have you seen since that time, that these types of excise taxes have seeped more and more into our lives? Has it become more of a problem?
Rasmussen: I would say on the state level, that is very true. State legislators love to try to increase tobacco taxes. It is an easy political target for them, so those are growing. But on the federal level, I would say that they’ve leveled off, which is a good thing. Actually, we’ve been working very hard to get rid of some of them. I can give you an example – the federal tax on communications. Up until recently, there was a 3 percent surcharge by the federal government on all of your prepaid calling cards, your cell phone, your phone service. This was a tax that was left over from 1898 to pay for the Spanish American War. Well I can tell you, folks – that war is over but that tax stayed around for almost a hundred years. Now the Treasury [Department] announced that they were no longer going to collect this tax, but it is technically still on the books.
So if a new president came around and decided he wanted them to start collecting that tax again to pay for more spending in government programs, that option is open. And other taxes that we are trying to target are some of the federal flight taxes. Sales tax is around 5 percent to 8 percent, yet taxes on your airline tickets can be anywhere from 16 percent to 26 percent. Perhaps we should consider lowering those.
Kokai: You mention what might happen when a new president comes along.
Rasmussen: Well, certainly, Barack Obama will be looking for every single revenue source he can find because he has proposed a lot of new government spending and he needs to pay for that somehow. We have actually totaled up all of his spending plans and, as of June, he wanted to increase annual federal spending by $363 billion. That is good chunk of money. So certainly I don’t think he would be pushing for any repeal of any excise taxes, and he would probably be looking for other revenue sources elsewhere. But, I would like to point out that excise taxes, because they are one rate levied on everyone, tend to be regressive. So if you are a lower-income individual, you will pay a comparatively higher rate when you compare that with someone with a higher income because you are all paying the same rate, but that lower-income person has less disposable money to spend.
Kokai: Kristina, what is your sense at this point about how well the fight is progressing against this type of tax?
Rasmussen: It is tough, and what will make it easier is telling folks about these taxes, because you don’t see that 18.4 cent-per-gallon federal excise tax every time you go to the pump. But now if you know about that and you think about the government profiting off your gas purchase, consider writing a letter to your member of Congress asking for the repeal of this tax.