Policy Documents

Excise Taxes - Focus on Michigan's Liquor Taxes

prepared by The Heartland Institute –
April 11, 2007

Alcohol, beer, tobacco, and other items have become big targets of tax-hiking lawmakers in recent years. Such taxes are technically called “excise taxes,” but are more commonly called “sin” taxes because they apply to items or behaviors some people consider harmful or sinful.

Why do lawmakers impose excise taxes despite their being, as Prof. Mooney says, “everything you don’t want in a tax?” Partly because they are easy to impose, partly because opposition to each excise tax is less broad than opposition to retail sales or income taxes, and partly because elected officials don’t realize the unintended consequences of these taxes.

Higher excise taxes result in higher prices for all consumers, so they take a larger part of a lowincome family’s budget than of an upper-income couple’s budget. High excise taxes create incentives for people to engage in smuggling and black markets, which can be violent and dangerous. High excise tax rates often generate less, rather than more, government revenue as people reduce their consumption of the taxed products or find lower-priced or illegal alternatives.