An Analysis of Excise Taxes on Wine in the United States

Excise taxes are a form of tax that are applied specifically to certain goods, and are charged by the wholesaler to the retailer; they are then usually passed onto the consumer through price increases. Throughout the history of the United States, this form of taxation has transformed and taken on a variety of different roles before arriving at its modern role; a tool to implement certain tax systems, such as the Pigovian system, as well as to influence consumer behavior. The purpose of this research is to evaluate the purpose of excise taxes on wine within the United States by comparing wine taxation to other categories of beverage alcohol, as well as other “sin items” such as cigarettes. This research also intends to identify certain demographic factors on a state-by-state basis that may have an influence on the implementation of wine excise tax policy. Through analyzing the implementation of alcohol excise taxes by comparing state tax revenue to a valuation of perceived negative externalities, it was discovered that alcohol tax policy does not fit the definition of a Pigovian system. Additionally, by analyzing the relationships held between certain beverage category consumption, Per Capita Personal Income, education levels, and excise tax; it was discovered that unlike for cigarettes and spirits, these demographic factors do not have an influence on their excise tax rates, but only on consumption. This leads to the conclusion that differences in state-by-state excise tax policy on wine is based on other state-specific factors.