	Introduction

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. 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. 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. 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. Revenue

In FY2015, federal excise tax collections on distilled spirits, wine, and beer totaled approximately $10.4 billion. Since the last excise tax rate increase in 1991, the inflation-adjusted value of tax collections on alcohol has declined. The decline in the share of alcohol excise tax revenue collections as a share of all of TTB's excise tax collections is due to three main factors: (1) the decline in real (inflation-adjusted) value of the alcohol excise tax rate over time, (2) multiple increases in the statutory, per-unit tax rates on tobacco products, and (3) firearms and ammunition tax collections automatically adjust for inflation because they are levied as a percentage of the manufacturer's price (i.e., an ad valorem tax). Economic theory suggests that excise tax increases could be borne by producers or consumers in the short run, but are generally passed on to the consumer in the long run. Although lower-income households tend to spend a higher share of their pre-tax income on alcoholic beverages, average household spending on alcoholic beverages is more evenly distributed than spending on non-alcoholic beverages or food. Horizontal Equity

Consumers pay different amounts of federal excise tax on the same amount of alcohol content, based on the type of alcoholic beverages they purchase. At current rates, distilled spirits are taxed at about 21 cents per ounce of alcohol, whereas wine and beer are taxed at 8 cents and 10 cents per ounce of alcohol, respectively. Potential Approaches to Increasing Alcohol Excise Tax Rates

Most of the legislation introduced in the 114 th Congress, described above, would reduce tax rates on alcoholic beverages. Policymakers could also increase the tax rate commensurate with the estimated costs of alcohol consumption to society, and possibly increase economic efficiency. A rough estimate in the Appendix of this report measures the combined federal, state, and local taxes between 25 cents and 28 cents per ounce (in 2013 dollars) of alcohol compared with Manning's inflation-adjusted rate of $1.02 per ounce (in 2013 dollars).
The federal excise tax on alcoholic beverages is imposed 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. 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. Alcohol excise tax collections totaled $10.4 billion in FY2015, with collections from distilled spirits comprising 55.1% of that amount.
Congressional interest in alcohol excise taxes is broad, given a variety of policy motivations and the industry's wide geographic distribution. Since their inception in 1791, federal excise taxes on alcohol have been imposed or increased throughout history primarily to fund emergency spending during wartime or in response to concerns over the growth of budget deficits.
Today, three main approaches drive interest in alcohol taxes: (1) tax rates could be decreased to benefit firms in the industry, (2) excise tax rates could be increased for deficit reduction, or (3) excise tax rates could be increased to discourage the negative spillover effects of alcohol consumption (e.g., drunk driving fatalities, property damage, domestic violence).
This report provides a brief historical overview of alcohol excise tax policy and a description of current law. Next, the report analyzes alcohol excise tax rates based on some of the standard criteria for tax evaluation: revenue, economic efficiency, and equity. Lastly, this report discusses bills introduced in the 114th Congress that would reduce current excise tax rates as well as possible approaches to raising alcohol excise tax rates.
Despite three tax rate increases since 1951 (with the last increase in 1991), alcohol excise taxes have declined in inflation-adjusted value over time. Excise tax reductions would reduce excise tax collections, reduce some of the regressivity in the federal tax code, and provide owners of the affected alcohol producers with a temporary increase in their profits (due to lower tax rates).
Economists typically justify imposing excise taxes on alcohol consumption to better reflect the costs of an individual's consumption of alcohol to society. While there is much debate surrounding the technical measurement of these linkages, most researchers argue that alcohol excise tax rates are set below the economically efficient level to compensate for social costs. One estimate finds the combined federal, state, and local taxes between 25 cents and 29 cents (in 2013 dollars) per ounce of pure alcohol compared with the external cost of $1.02 per ounce.
Analysis suggests that excise tax increases are usually passed forward to consumers through higher prices and are not borne by the owners of alcoholic beverage manufacturers or importers.
Excise taxes are generally regressive, alcohol included. Lower income households tend to spend a higher share of their pre-tax income on alcoholic beverages, but this distribution is not as uneven as spending on non-alcoholic beverages or food. Consumers also pay different amounts of federal excise tax on the same amount of alcohol content, based on the type of alcoholic beverages they purchase. At current rates, the federal tax per ounce of pure alcoholic content for spirits, wine, and beer is 21 cents, 10 cents, and 8 cents, respectively.