page_title: Excise tax in the United States
section_title: Historical background
hierarchical_section_title: Excise tax in the United States / Historical background
caption_attribution_description: English: Excise taxes as a share of federal revenues 1950 - 2007.
context_page_description: Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are not uniform throughout the United States. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such often remain "hidden" in the price of a product or service, rather than being listed separately.
context_section_description: Federal excise taxes have a storied background in the United States. Responding to an urgent need for revenue following the American Revolutionary War, after the U.S. Constitution was ratified by the ninth state in 1788 the newly elected First United States Congress passed, and President George Washington, signed the Tariff Act of July 4, 1789, which authorized the collection of tariff duties (customs) on imported goods. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first U.S. Secretary of the Treasury, Alexander Hamilton, in 1789, to tax foreign imports. Hamilton thought it was important to start the U.S. federal government out on a sound financial basis with good credit and a regular, easily collected source of income. Customs duties (tariffs) on imported goods, as set by tariff rates, were the source of about 80–95% of all federal revenue up to 1860. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive, brought in enough money to pay off the debt and pay for the relatively low cost federal government (at the time) and be relatively easy to collect. Tariffs met all these criteria.
  In addition to tariffs, low excise taxes were imposed to provide the federal government with some additional money to pay part of its operating expenses and to help redeem at full value U.S. federal debts and the debts the states had accumulated during the American Revolutionary War.
  The first federal budget was about $4.6 million and the population in the 1790 U.S. Census was about four million, so that the average federal tax was about $1/person per year. At that time, tradesmen earned about $0.25 a day for a 10- to 12-hour day so federal taxes could be paid with about four days work. Paying even this was usually optional, as taxed imports listed on the tariff lists could usually be avoided by buying domestic products if desired.
  Congress set low excise taxes on only a few goods, such as whiskey, rum, tobacco, snuff and refined sugar. These low excise taxes accounted for only a small percentage of the federal income (see table on U.S. Historical Taxes). Tariffs (custom duties) were initially by far the largest source of federal income. The excise tax on whiskey was so despised by western farmers who had no easy way to transport their bulky grain harvests to market without converting them into alcohol that it led to the Whiskey Rebellion, which had to be quelled by Washington calling up the militia and suppressing the rebellious farmers, all of whom were later pardoned. In the days before steamboats, canals, railroads, etc. bulky cargo could not economically be shipped far. The whiskey excise tax collected so little and was so despised that it was abolished by President Thomas Jefferson in 1802.
  In the Napoleonic Wars and the War of 1812 the imports and tariff taxes in the United States plummeted and Congress in 1812 brought back the excise tax on whiskey to partially compensate for the loss of customs/tariff revenue. Within a few years customs duties brought in enough federal income to abolish again nearly all federal taxes except tariffs. When the United States public debt was finally paid off in 1834, President Andrew Jackson abolished the excise taxes and reduced the customs duties (tariffs) in half.
  Excise taxes stayed essentially zero until the American Civil War brought a need for much more federal revenue. Excise taxes were reintroduced on a wider range of items and income taxes were introduced.
  By about 1916, the loans taken out during the Civil War were all paid off and the excise taxes were again set very low. On January 16, 1919 the 18th Amendment was passed and alcohol production, sale and transport were essentially prohibited. Taxing alcohol products would have produced almost no income, given that alcohol sales and production had gone underground. All federal excise taxes remained essentially zero for the next ten years.
  During the Great Depression (1929–1939) President Franklin D. Roo
caption: Excise taxes as a share of federal revenue 1950–2007.[6]
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