The federal government levies an excise tax, at the manufacturer and importer level, based on the per unit production or importation of alcoholic beverages (e.g., distilled spirits, wine, and beer) for sale in the U.S. market. Alcohol excise taxes in the United States have a history almost as old as the federal government itself, as alcohol taxes were among some of the first federal revenue sources in the early republic. For much of U.S. history, alcohol excise taxes have served as one means to help fund emergency levels of spending (such as during wartime) and to reduce rising budget deficits (such as in 1990). The modern-day interest in alcohol taxes is broad, with arguments presented to either raise or decrease current alcohol excise tax rates. Various approaches could be taken, such as follows: Increasing excise taxes could serve as a source of revenue as part of a larger budget deficit reduction package or as an offset, Reducing excise taxes could benefit firms in the alcoholic beverage manufacturing industry, or Increasing excise taxes could discourage the negative spillover effects associated with alcohol consumption (health, safety, crime, etc.). First, this report provides a recent history of alcohol excise tax rates and a description of current law. Second, this report provides a revenue analysis, with a particular focus on the effect of inflation on the real, inflation-adjusted value of alcohol excise tax revenue over time. Third, this report provides an overview of the U.S. alcoholic beverage manufacturing industry. Fourth, alcohol excise taxes are analyzed with a particular focus on market structure, the effects of alcohol excise taxes on negative spillover effects from alcohol consumption, and how the distribution of these excise taxes affect various measures of equity in the federal tax code. Lastly, this report briefly summarizes relevant bills introduced in the 114 th Congress. Federal alcohol excise tax policy has largely been driven by periodic demand for additional revenue. Alcohol excise taxes were first introduced in 1791 by Treasury Secretary Alexander Hamilton as a means to fund the early republic, and they were reimposed, raised, and repealed over the next two centuries surrounding periods of wartime. Public sentiment and empirical research that often assert that higher alcohol taxes reduce the negative spillover effects of alcohol consumption on society. However, this public health argument for increasing alcohol taxes has been less prominent in debates to increase taxes on alcohol compared with other "sin taxes" on tobacco. Shortly after the end of Prohibition in December 1933, Congress enacted a comprehensive alcohol excise tax system in 1934. These taxes were re-enacted during an era of federal budget deficits brought on by the economic stagnation of the Great Depression and federal spending under the New Deal. Although revenue was a major concern, Congress initially sought to set excise tax rates at a level that would enable legal alcohol producers to be competitive with the underground, bootlegging economy that emerged during Prohibition. Tax rates gradually increased from 1934 to 1951 and helped to fund spending associated with World War II and the Korean War. The tax rate on distilled spirits remained unchanged from the middle of the Korean War in 1951 to 1985. In October 1985, the rate was raised from $10.50 to $12.50 per proof gallon (ppg). The Deficit Reduction Act of 1984 ( P.L. 98-369 ), enacted on July 18, 1984, increased the rate of tax on distilled spirits from $10.50 to $12.50 ppg, effective October 1, 1985. Under the Omnibus Budget Reconciliation Act of 1990 (OBRA90; P.L. 101-508 ), the rate was increased by $1.00 to $13.50 ppg, effective January 1, 1991. The legislative history seems to indicate that excise taxes on alcohol (and tobacco) were raised in OBRA 1990 primarily to raise revenue. The taxes on wine are levied at a variety of rates. The tax rates that applied to wine had remained unchanged from 1951 until the passage of OBRA90. Pre-OBRA90 tax rates ranged from 17 cents per wine gallon for still wine to $3.40 per wine gallon on sparkling wines. Post-OBRA90, these rates now range from $1.07 per wine gallon to $3.40 per wine gallon. The tax rates on champagne and sparkling wines were not increased. A small domestic wineries credit equal to 90 cents per wine gallon is provided for the first 100,000 gallons of wine production, with a phase-out of the credit for wineries producing between 150,000 and 250,000 wine gallons. The Revenue Act of 1951 increased the tax rate on beer from $8.00 to $9.00 per barrel (a barrel contains 31 gallons). A second, reduced rate structure was enacted in 1977 specifically for small brewers. The regular tax rate on beer remained unchanged until OBRA90, which doubled the existing rate, effective January 1, 1991, to the current rate of $18 per barrel. OBRA90 authorized the Secretary of the Treasury to establish regulations that would prevent larger brewers (who produce more than 2,000,000 barrels of beer per year) from paying lower rates intended for small brewers. The current rate for small brewers, enacted by OBRA90, is $7.00 per barrel for the first 60,000 barrels and the regular rate of $18 for barrels 60,001 to 2,000,000. Any brewer making more than 2,000,000 barrels per year must pay the full tax rate of $18 per barrel on their total annual production. The tax rates that went into effect in 1991 remain current law, as summarized in Table 1 . In addition to listing the tax per volume, as defined in statute, Table 1 also shows the Alcohol and Tobacco Tax and Trade Bureau's (TTB, within the Department of the Treasury) conversions of these tax rates into common package measures. For example, the excise tax on a 12 oz. can of beer is approximately $0.05, or $0.30 for a six-pack of beer (at the regular rate). The alcohol content of beer and wine is taxed at a lower rate than the alcohol content of distilled spirits when converted to equivalent measures of alcoholic content, as shown in Figure 1 . The current excise tax levied on those spirits, $13.50 per proof gallon, translates to about 21 cents per ounce of pure alcoholic content. Beer is taxed at $18 per gallon, which translates to about 10 cents per ounce of alcohol (assuming an alcohol content of 4.5%). The current excise tax on wine is $1.07 per wine gallon, or about 8 cents per ounce of alcohol (assuming an average alcohol content of 11%). Figure 1 also shows that consumers of different types of alcohol also face different tax rates per standard drink, depending on what type of alcohol they consume. When converted to standard drink measures liquor drinks are generally subjected to a federal excise tax of approximately 13 cents per 1.5 ounce shot, wine is taxed at 4 cents per 5 ounce glass, and beer is taxed at 5 cents per 12 ounce can or bottle. The excise tax is deductible as an ordinary cost of doing business for firms subject to an income tax. In economic terms, a manufacturer or importer's effective tax rate is increased by less than the full magnitude of the tax because they can reduce the amount of their income that is subject to tax (assuming they have income to tax). In the past, TTB has enforced two other forms of taxes on the alcohol industry. Neither tax, however, currently applies to the alcoholic beverages industry: Floor stocks tax is a one-time tax on untaxed, current inventories and is typically imposed as part of legislation that increases excise tax rates. Floor stocks taxes are a transitional measure that prevents taxable entities from stockpiling the product after the announcement of a tax increase, but prior to its effective date, as a means to reduce their exposure to the higher rates. Special occupational tax (SOT) is a tax that is imposed on manufacturers, importers, wholesalers, and retailers in a certain industry subject to registration and excise taxation under TTB's jurisdiction (e.g., tobacco, firearms). In 2005, Section 11125 of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( P.L. 109-59 ) permanently repealed the SOT for the business of selling, manufacturing, importing or wholesaling of beverage alcohol products or manufacturing non-beverage alcohol products (effective July 1, 2008). Recordkeeping and registration requirements for these businesses were not repealed. These taxes amounted to a relatively small share of TTB's annual tax collections. For example, total SOT collections comprised less than 0.001% in 2007 ($2.8 million). In addition to federal excises, all 50 states and some localities levy their own excise taxes on alcoholic beverages. These tax rates vary by state (or locality) and by the type of alcohol. Although some states and localities have increased their alcohol excise tax rates more recently, these policy changes are relatively infrequent. In addition, some states have controlled sales of certain types of alcoholic beverages via state-run retailers. Retail sales in control states typically include some sort of wholesale "markup" in addition to a sales tax. In general, state and local excise tax rates are also greater on distilled spirits than on beer or wine. States with controlled sales on beer or spirits tend to have higher tax rates than states without controlled sales, but this is not always the case. Differences in tax rates between states could lead some consumers to cross state lines to purchase alcoholic beverages. In FY2015, federal excise tax collections on distilled spirits, wine, and beer totaled approximately $10.4 billion.