Tax, federal excise

Low level blends of ethanol and and gasoline enjoyed some popularity in the United States in the 1970s. The interest persists into the 1990s, encouraged by the exemption of low level ethanol-gasoline blends from the Federal excise tax as well as from state excise taxes in many states. 

In the first years of gasohol use some starting and driveabiUty problems were reported (19). Not all vehicles experienced these problems, however, and better fuel economy was often indicated even though the energy content of the fuel was reduced. Gasohol was exempted from the federal excise tax amounting to a 0.16/L ( 0.60/gal) subsidy. Without this subsidy, ethanol would be too expensive for use even as a fuel additive. 

Joint Committee on Taxation, U.S. Congress. (1999). Schedule of Present Federal Excise Taxes (as ofjanuaiy I, 1999). Washington, DC U.S. Government Printing Office. 

In England, the Magna Carta provided a standard of measurement for the sale of ale and wine. In 1643, the English Parliament proposed the first tax on distilled spirits. In the American colonies, William Kieft, Director General of New Nethedand, imposed the first liquor tax of two guilders on each half vat of beer in 1640. Alexander Hamilton initiated an excise tax on domestic spirits in 1791. The tax was resented and ultimately repealed in 1800 by Thomas Jefferson. Except during the War of 1812, domestic spirits remained untaxed until 1862. At that time, a tax of 0.02/L was implemented, which has been increased periodically. In January 1991, the Federal Excise Tax on distilled spirits was raised to 3.56 per liter or 13.50 per proof gallon. In addition, many states have substantially increased the state excise taxes on distilled spirits. 

Compositional aspects that are regulated include a label statement within 1.5% for table wine (for dessert wines, 1.0%) of the wine s alcohol content. For tax identity reasons, alcohol of 7—14% is required for table wines and 17—21% for dessert and appetizer wines. Federal excise tax rates are 0.28/L for table wines, 0.41/L for wines 14—21% alcohol, and 0.83/L for those (rare) >21-24%. Coolers made with wine become taxable at 0.5% and are taxed as table wine above 7% alcohol. Sparkling wine is taxed at 0.90/L and carbonated at 0.87/L. The borderline to incur these taxes is C02 above 3.92 g/L. 

However, high U.S. diesel fuel prices may put a spoke in marketing efforts. Adding insult to injury is the added costs of transitioning to low-sulfur diesel fuel and a higher federal excise tax (24.4 cents per... 

Permanent exemption for gasohol from the 4 /gallon federal gasoline excise tax. The President originally proposed an exemption of gasohol from the 4 /gallon federal excise tax in 1977. 

Alternative fuels such as grain alcohol were available. But, alcohol was more expensive at twice the price per gallon at the turn of the century. This did not include the federal excise tax placed on alcohol in 1862 to help reduce the Union s costs in the Civil War. By 1907, the tax was repealed. But, the process of denaturing alcohol, to make it undrinkable and enforce the sobriety of Americans, added to its price and gave gasoline the advantage. It also took more alcohol to produce the same amount of power than gas. 

A new development in the area of alternative diesel fuels is a fuel produced from vegetable oils and animal fats using specially modified hydrogenation processes in a conventional petroleum processing facility (Rantanen et al., 2005). This fuel retains the low sulfur and low aromatic character of biodiesel but contains no oxygen and has a heating value that is similar to petroleum diesel fuel. Recent U.S. interest in this approach has expanded due to governmental announcements that the fuel qualifies for federal excise tax credits. 

By the standards of recent history, current tax rates are low... Congress has not legislated increases in these taxes, so their real costs have been eroded by inflation. Restoring the federal excise tax on beer to its value in say, 1960, would require that it be increased by a factor of three. .. Overall, alcoholic beverages are far cheaper today than they were in the 1960s and 1970s. ... 

Therefore, the federal excise tax could reasonably be doubled. Remember, this would only add 0.33 to a 6-pack ofbeer or about 0.05 a beer. In 2004, the federal excise tax on alcohol raised nearly 8 billion. An increase of 100 percent in the excise tax should reduce consumption. Therefore, to be conservative about revenue, let s say that the increase in excise tax only increased the total amount collected by 6 billion. Therefore, there will be 6 biUion a year to implement these recommendations. 

The Tax Foundation, 2005. Federal excise tax collections 1940-2004. http //www.taxfoundation.org/research/show/240.html (accessed October 20, 2005). 

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