Date 5 December 1944
Author Ecker-Racz, Lazlo and [?] Farioletti
Title Some considerations respecting the advantages of increased and additional selective excise over a general sales tax
Description Staff memo, Division of Tax Research, U.S. Treasury Department
Location Box 1; Excise and Sales Taxes in General; Records of the Office of Tax Analysis/Division of Tax Research; General Records of the Department of the Treasury, Record Group 56; National Archives, College Park, MD.

April 10, 1941

Mr. Blough

Mr. Ecker-R. and Mr. Farioletti

Subject: Some considerations respecting the advantages of increased and additional selective excise over a general sales tax

The principal considerations which might be advanced in support of more intensive use of selective excises, as opposed to the introduction of a general sales tax, fall into six general categories: (A) Public policy; (B) Revenue; (C) Equity among producers; (D) Incidence; (E) Tax compliance; and, (F) Tax administration.


1. Insofar as the need for additional revenue is of an emergency character, it can be met more successfully through the use of selective excises than by a general sales tax would require the creation of an elaborate administrative structure entailing more time and expense than a temporary tax warrants (assuming that the revenue requirements do not necessitate the imposition of so large a number of excises as to approach the general sales tax in scope.)

2. The conflict between the Administration's declared policy of avoiding regressive taxes and the imposition of consumption taxes can be minimized by the use of taxes on specific commodities selected with this objective in view. By fitting the selective tax structure to the peculiar characteristics of individual commodities, regressivity can be kept to a minimum.

3. By employing the flexibility inherent in selective excises, many of the economic dislocations consequent to a general sales tax can be minimized.

4. The super-imposition of a general sales tax on existing Federal excises would add to the complexity of the Federal tax structure.

5. Should the defense program require the curtailment of civilian consumption of specific commodities through tax measures, the existence of an elaborate excise structure would afford a flexible instrument for that purpose.

6. The Federal-State fiscal conflict involved in the imposition of a Federal sales tax in addition to existing state and local sales taxes would in part be mitigated by a more intensive and extensive use of selective excises.

7. The imposition of a Federal general sales tax in addition to the existing State sales taxes would arouse much public opposition, which in part could be avoided by a greater use of selective excises, even if revenue requirements necessitate substantial additions to the present list.


1. Within limits, a given amount of revenue could be raised more readily through the use of selective excises imposed at higher rates than by a lower-rate general sales tax.

2. While the potential revenue yield from a general sales tax is higher than that from selective excises, this potential yield cannot be readily achieved because of (a) the administrative necessity for a low rate; (b) the inevitable exemption of important articles of common consumption; (c) the administrative requirement for a minimum sales exemption; and, (d) the probability of less effective administration.

3. The initial rate of a general sales tax would have to be lower than that in the case of selective excises because of (a) the lack of Federal experience with a general sales tax and the necessity for developing a new administrative structure; (b) the necessity for keeping the rate low in order to minimize litigation; and (c) the need for minimizing the unequal economic effects of a general rate of tax applied to commodities in general. The rate of the general sales tax has to be low to minimize the disturbing effects of the tax in those cases in which a larger tax cannot be passed on by the taxpayer.


1. Selective excises can be adapted to the supply characteristics of individual commodities. By exploiting this flexibility the competitive position of different producers within the industry will be disturbed less than under a general sales tax.

2. In selective excises uniformity of tax base can be more readily achieved than under a general sales tax because the taxpayers within one industry are more homogeneous than taxpayers in all industries.

3. To the extent that homogeneity is lacking among several producers in the same industry, it can be more readily compensated for by special provision. As a consequence, the revenue obtainable from selective excises can be maximized without the undesirable economic effects inherent in a similar attempt under a general sales tax.


1. The use of selective excises enables the adaptation of the taxes to the demand characteristics peculiar to each commodity. The regressive character of commodity taxation can be minimized by imposing the excises on those articles for which the consumption expenditures are relatively more important at the higher than at the lower income levels.

2. Special exemption provisions with respect to each article would permit the tax burden to be less regressive than under a sales tax.

3. Since multiple taxation is likely to be only incidental under selective excises, the tax burden with respect to consumers would tend to be less regressive.

4. Pyramiding could be more readily controlled NBER excise taxes than under a general sales tax; consequently, the undesirable effects of pyramiding could be more easily avoided.


1. The number of taxpayers under selective excises would be substantially less than under a general sales tax.

2. The imposition of a general sales tax, in addition to the present excises would in the case of many taxpayers necessitate the preparation of several tax returns and the payment of several separate taxes with respect to the same transaction. A more intensive use of excises would minimize that possibility.

3. The use of selective excises would enable the issuance of more specific tax regulations than would be possible if a general sales ax were imposed. This, in turn, would make for more certainty on the part of taxpayers.

4. The more intensive use of selective excises would mean that in many cases the additional revenue would be collected form taxpayers already experienced in paying the particular tax and in complying with the regulations. The general sales tax on the other hand would require the education of a vast number of new taxpayers.


1. Within limits, a certain amount of tax revenue can be raised with less administrative difficulty from higher rates on existing excises and from new selective excises than from a general sales tax.

2. In view of the complex and diverse character of the several segments of American industry and the impracticability of recognizing such diversities in statutes and regulations, the administration of a general sales tax would not be as effective as that of selective excises. However, a greater delegation of discretionary authority to tax administrators would be an offsetting consideration.

3. Uniformity of tax base -- especially troublesome because of important variations among taxpayers in the character and degree of industrial integration sales policies, and form of business organizations -- can be more readily attained under the excises than under a general sales tax because of greater opportunities of fitting the tax on each commodity to the representative situation (the ordinary course of trade) in each industry.

4. The difficulties of "multiple taxation" raised by a general sales tax can be avoided almost entirely under selective excises.

5. The efficient administration of exemption provisions can be accomplished more successfully under selective excises.