3. Thresholds could be established for certain articles, with the taxes applying to the excess of price above the established threshold. For example, the tax on automobiles could apply to the excess of the price over $20,000, and the tax on boats and yachts could apply to the excess of the price over $15,000. Under all three proposals, whether the taxes would be imposed at the manufacturer or retail level would be determined based on the relative ease of administering each tax. Pros and Cons Arguments for the proposals 1. Excise taxes have a direct effect on reducing consumption of the taxable items, and thus encourage savings. 2. Properly targeted, luxury excise taxes would affect wealthier individuals to a greater degree as a percentage of disposable income than the poor. Inclusion of such taxes in a revenue-raising package would help render such a package more progressive in its impact. Arguments against the proposals 1. Administrative cost-revenue ratios associated with these excise taxes would be very high relative to the cost-revenue ratio of income taxes. Relative administrative costs are higher for retail excise taxes than for manufacturers excise taxes because of the greater number of retailers, and thus a greater number of returns to process. However, the determination of price in many transactions below the retail level is determined on the basis of negotiations or arbitrary prices set between manufacturers and wholesalers owned by the same person rather than set prices applicable to purchasers generally; taxes levied on such transactions tend to create even greater distortions in relative prices. 2. There are few objective standards available to use in deciding which articles are luxury goods. 1 All proposals would be effective on October 1, 1987, with appropriate floor stocks taxes being imposed. 5. Firearms Excise Taxes Present Law Two manufacturers excise taxes are imposed with respect to firearms under present law. First, tax is imposed at 10 percent of sales price on the sale of pistols and revolvers and at 11 percent of sales price on the sale of rifles, shotguns, and ammunition. Second, a special $200-per-firearm excise tax is imposed to regulate the production of machine guns, destructive devices (e.g., bombs, grenades, mines, etc.) and certain other concealable fire arms. Revenues equivalent to the 10-percent and 11-percent excise taxes are dedicated to financing of the Federal Aid to Wildlife Program for support of State wildlife programs. Possible Proposals Both of the present excise taxes on firearms could be doubled. In the case of the 10-percent and 11-percent taxes, the additional revenues could be retained in general revenues rather than being dedicated to support State wildlife programs. Pros and Cons Arguments for the proposals 1. If excise taxes are to be increased for deficit reduction, it is appropriate to increase all such taxes, rather than singling out specific taxes and industries. 2. Tax rates have not been increased on pistols and revolvers since 1955, and since 1940 in the case of the 11-percent tax on other firearms and ammunition. Argument against the proposals Revenues from certain of these excise taxes historically have been dedicated to the Federal Aid to Wildlife program. Because of the relatively small amounts of revenue involved, continued dedication of all revenues from these taxes to support of wildlife programs is appropriate. (48) 1 The proposal would be effective on October 1, 1987, with appropriate floor stocks taxes being imposed. 6. Pollution Excise Taxes a. Excise tax on sulfur and nitrogen emissions Present Law Sulfur dioxide and nitrogen oxide emissions are not taxed under present law. Possible Proposal An excise tax could be imposed on emission into the atmosphere of sulfur dioxide and nitrogen oxides from any boiler or furnace which is used to burn fossil fuels for steam production. A variable rate of tax could be imposed depending on the emissions rate. A 25-percent income tax credit, earned ratably over 10 years, could be allowed for investment in pollution control equipment. Arguments for the proposal Pros and Cons 1. A tax on sulfur dioxide and nitrogen oxide emissions would create an incentive for boiler operators to reduce such emissions which have been linked to acid rain. 2. Emissions reductions may be achieved with lower costs to industry and government by imposition of an emissions tax as compared with alternative policies such as power plant emission limitations. Arguments against the proposal 1. An emissions tax would raise domestic manufacturing costs, making it more difficult for U.S. producers to compete with foreign producers in both the domestic and world markets. 2. Taxpayers would be required to calculate on a continuous basis taxable emissions of sulfur dioxide and nitrogen oxides. This could require costly monitoring or fuel content analysis. 3. An emissions tax would discourage use of high-sulfur coal. This would adversely affect employment and profits in the highsulfur coal mining industry, which is concentrated in Appalachia and the midwestern portion of the United States. (50) |