Excise Tax Cuts and the Economy

Report Outline
Impending Changes in Federal Excises
Excise Taxation in U.S. Fiscal History
Attempts to Balance the Tax Burden
Special Focus

Impending Changes in Federal Excises

Some excise taxes will be repealed, and others will be reduced, next July 1. How many of the numerous levies of this kind now collected will pass out of the federal fiscal picture entirely—and how many will be assessed at lower rates—is not yet certain. President Johnson has said only that he will ask Congress to make excise tax changes that will reduce the total yield by $1.75 billion. There is no doubt that Congress will comply. Pressures for reduction are so great, in fact, that the amount of revenue lost by the cuts is likely to be considerably more than the sum cited by the President.

Use of Excise Reduction as Economic Stimulant

There have been indications that the administration will not make strenuous efforts to hold the volume of excise reductions to the revenue figure that was originally proposed in January. On the contrary, if the economy within the next two months shows signs of slowing down in the latter part of the year, the administration itself may request more extensive excise cuts as a means of stimulating sustained growth.

Chairman Gardner Ackley of the President's Council of Economic Advisers, testifying before the congressional Joint Economic Committee on Feb. 19, said that “The uncertainties in the outlook underline the importance of flexibility in fiscal policy.” Ackley expected the economy to continue to expand. However, his testimony made it seem probable that additional excise reductions would have a green light at the White House if it developed that “a marked … slackening from our recent rate of progress” was likely to occur in the second half of the year. The Joint Economic Committee on March 17 called the proposed $1.75 billion reduction insufficient to permit “the thorough overhaul [of excise taxes] that is desirable.” Although the committee named no specific amount, it recommended larger excise tax cuts “because even the most optimistic forecasts for the coming year do not promise achievement of … maximum employment, production and purchasing power.”