Excise Taxes vs Income Taxes
W. Dean Watkins

The 2000 Prohibition Party platform advocates using excise taxes to pay for the operating costs of the federal government. It also advocates the abolishment of personal income taxes. Many people think this is a radical stand. However, let us examine the federal tax system.

The first Internal Revenue Act was passed in 1862 to help pay for the costs incurred in the Civil War. This tax was a personal income tax. It ended ten years later, in 1872. It took nine more years for the Supreme Court to declare the Act of 1862 unconstitutional. In spite of this, a second federal income tax was levied in 1894, but the Supreme Court again declared it unconstitutional. The reason was that the Constitution stated that any tax levied directly on individuals must be levied in proportion to a State's population. To levy such a tax had the effect of placing a higher tax burden on individuals living in a State with a larger population.

During the 1890's, a few states became interested in enacting State income tax laws. Wisconsin enacted one in 1911. Their success led other States to enact similar laws. In 1909, the U.S. Congress passed a law providing a type of corporate income tax, but the Supreme Court found that law unconstitutional. In order to avoid future adverse court rulings, it was necessary to amend the Constitution.

In 1913, the 16th Amendment to the U.S. Constitution allowed Congress to levy personal income taxes without the former constitutional restrictions. Witholding of personal income taxes began in 1943 and established a federal bureaucracy which now employs 86,000 people. The tax codes have been revised from time to time, primarily to close loopholes and in some instances to allow for certain deductions. These revisions occur about every 10 years, and they are currently working on yet another revision which proposes to reduce the individual's tax burden. In 1994, individual income taxes accounted for $620,000,000,000, while corporations paid $154,000,000,000.

Excise taxes are levied on the manufacture, sale, or use of goods or services. These are levied at the local, state, and national levels. While this is called a corporate tax, the corporation passes along this tax to the consumer. Taxes on tobacco and on alcoholic beverages are in this category.

The first excise tax on distilled spirits was levied in 1791. The tax caused the (unsuccessful) Whiskey Rebellion of 1794, which was led by farmers and distillers in western Pennsylvania. The federal government has never given up this right to tax liquor. However, taxes on alcoholic beverages brought in little federal revenue until the repeal of Prohibition in 1933. In 1998, excise taxes on alcoholic beverages amounted to about 1% of all internal revenue.

It is interesting that in 1865 the share of the national debt was $75 per person. This steadily declined, so that in 1910 it was only $12 per person. Remember that in this 45-year period, personal income tax was in effect for only the first 10 years. The public debt was reduced by excise taxes. With an income tax going into effect, we entered WW I. The share of the national debt was $228 per person. This had been reduced to $131 by 1930, but federal social programs enacted during the Great Depression raised it again, to $325 per person by 1940.

Then, we entered WW II. By 1950, the share had become $1688 per person. By 1996, a whopping $19,192 was the per-person share, and this occurred while the personal income tax was bringing in the greatest share of federal revenue. While it is attractive to the voter to ply his favor with tax cuts, as is currently being proposed, any surplus in the federal coffers should be used to pay off part of the public debt. The national debt is now (October, 1999) 68% of the Gross Domestic Product. This is obscene! Clearly, there is something wrong with this picture.

Is eliminating personal income taxes and the IRS a radical idea? Not if you take into consideration other planks in the Prohibition Party Platform.

Population from Bureau of the Census
National Debt from Office of Management and Budget
Gross Domestic Product from Bureau of Economic Analysis
Historical data from several encyclopedias, notably Microsoft Encarta

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