Hooray, hooray, it’s St. Patrick’s Day! Though you may celebrate by wearing green today, many people worldwide celebrate the day with a pint (or two) of green beer among friends. In fact, 13 million pints of Guinness alone will be consumed today!
So why are you reading about this on a tax blog? Two reasons: (1) Even tax experts enjoy knocking back a beer or two and (2) Every time you buy a bottle of beer or a draft, you are paying a tax. Wouldn’t you know it!
Remember that “luxury tax” you paid in Monopoly when you drew that dreaded card? Beer is one of those items subject to that tax. The official name of the luxury tax is “excise tax” and today it applies to a wide variety of goods: cigarettes, alcohol, gasoline and airline tickets. It is imposed on the manufacturer, and passed on to the consumer in the price of the goods.
Excise taxes go back to the American Revolutionary War. With the US deeply in debt from the war, George Washington signed the Tariff Act. The Act imposed an excise tax to pay off the debts incurred in the Revolutionary War, a war fought over the imposition of taxes. Ah, the irony of it all!
Under the Tariff Act, tariffs were imposed on foreign goods being imported to the US, and excise taxes were imposed on domestic goods such as whiskey, rum, tobacco and snuff. The excise tax quickly became known as the “whiskey tax”, and was so despised by farmers and distillers that it led to the Whiskey Rebellion in 1791.
In response to the civil unrest of the Rebellion, Thomas Jefferson abolished the whiskey tax in 1802, and the tax lay low in the next century. When the 18th Amendment to the US Constitution abolished alcohol in the US, the tax went completely defunct. But when the 21st Amendment made alcohol legal again during the Great Depression, excise taxes came roaring back, and whiskey tax accounted for a third of all federal taxes paid in that era.
Today many federal programs, and some state and local programs too, depend on the revenues raised by excise taxes. So this St. Patrick’s Day, you can help repair a bridge or highway by hoisting a glass or two with friends. Just make sure to put away your keys. Cheers!