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22 IRET Policy Bulletin 1 (1986)

handle is hein.taxfoundation/iretpbul0005 and id is 1 raw text is: P liY . 1331 P( EIUIILIN 0 UInstitute forresearcfl on te economics of taxation a tax-exempt 501(C)(3) organization ennsylvania Avenue, N.W. Suite 515 Washington, D.C. 20004 (202) 347-9570 March 24, 1986 CHAIRMAN PACKWOOD'S PROPOSED EXCISE TAX AND TARIFF CHANGES SUMMARY Senate Finance Committee Chairman Packwood's proposed excise tax and tariff changes would intensify the seriously adverse economic effects of these taxes. These changes would impair productivity, cost jobs and income, and waste our economic resources. Selective excises not only burden purchasers of the taxed products and services, even more seriously they distort the use of production resources, resulting in less productive use of labor and capital. Those supplying these production resources sustain losses in income and wind up in production activities in which they are less well rewarded in real terms. The entire economy suffers from the dislocations resulting from selective excises. If implemented. Senator Packwood's proposal to tax alcohol, tobacco, and motor fuels on the basis of their prices rather than, as at present, on the basis of physical quantities would result in increases in these taxes as their prices rise. Under present law, the adverse effects of these taxes declines as the prices of the taxed items increase. This erosion of the economic disadvantages of selective taxes would be lost as a result of the proposed change. By denying the deductibility of Federal excise taxes in computing a business's taxable income, the true rate of these excise taxes would be increased, thereby intensifying their adverse effects on the economy. At the same time, nondeductibility of these taxes would increase the income tax rate on the true net income of the affected businesses. Instead of contributing to attainment of a level playing field, ostensibly a major objective of the current tax reform effort, this change would riddle the playing field with tax differential potholes. Note: Nothing written here is to be construed as necessarily reflecting the views of IRET or as an attempt to aid or hinder the passage of any bill before Congress.