

Edited by: Lalor, John J.
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EXCISE, a term employed to designate a great variety of taxes. In its more limited and more correct sense it is applied only to taxes imposed on the sale and production of commodities produced and consumed within the country levying the tax. Excise duties are distinguished from customs duties by the fact that the latter are imposed upon commodities when imported into or exported from a country. They are further distinguished from such taxes on consumption as a tax on dogs, on horses and carriages kept for private use, etc., in that the latter are direct, while the excise duties are indirect. (See TAXATION.)


—The excise has been a very important element in all modern systems of finance. It has indeed been by far the most fruitful source of revenue for many nations. It has also been employed as a means of restraining luxury or intemperance by being made so exorbitantly high as to diminish the consumption of the article taxed. The nations of antiquity do not seem to have made very extensive use of this method of taxation. Augustus, it is true, introduced a universal excise duty on whatever was sold in the markets or by public auction. But it did not amount to more than 1 per cent., and was but inefficiently collected. It was exceedingly unpopular, and even Augustus, in order to maintain it, was obliged to declare by a public edict that the support of the army depended in great measure on the produce of the excise. Tiberius reduced it one half and promised to abolish it altogether, although he did not keep his promise. Some of the later emperors availed themselves of the excise to a greater or less extent. But it was reserved for modern times and for industrial states to discover how large a revenue could be derived from this method of taxation.


—When the payments in kind, which in the old agricultural and feudal state had proved amply sufficient to defray all public expenses, were no longer adequate to the demand, the need of some standard of taxation for movable property began to be keenly felt. In the country, under the simple conditions there prevailing, it was not unfair to distribute taxation according to the amount of land held by each individual. But in the cities it was evidently impracticable to concentrate all taxation on real estate. Consumable commodities seemed the most available subjects of taxation. By shifting the burden upon them the city authorities could gain two things. They could prevent the tax collector from interfering in the internal administration of the city, and could also save themselves the trouble of fixing a definite amount for each individual citizen to pay. This last was considered a great saving, especially as these taxes were everywhere regarded as temporary on their first introduction. They became permanent when wars began to be carried on largely by money, and began to leave behind them national debts which demanded a constant source of income for their liquidation. Thus the Netherlands adopted the excise in their was for independence against Spain; Saxony, after the thirty years' war; Brandenburg, under the great elector. Spain had a similar tax in the Alcavala at the time of the Moorish wars.


—It is usual to assign 1643 as the date at which the excise was introduced into England. This is in so far correct as the term excise then appears for the first time, and as the imposts then levied remained a permanent feature of the English revenue system. But excise duties had been in existence long before. There are evidences which prove the existence of an excise on meat as early as the time of Richard I. In the time of John and of Henry III, there was a tax on bread, which was nothing but an excise, in which the price of bread was regulated according to that of grain. Later, in the time of Edward VI., a tax of eight pence in the pound was levied on all woolen goods manufactured in England for sale. But it became so unpopular that the king was obliged to give it up within a year after it was first imposed. From that time on no attempt seems to have been made to introduce an excise until the time of James I., when this monarch imposed a tax of one shilling per chaldron on all coal shipped by water. This was not a customs duty, for it was levied on English coal shipped from one English town to another. Soon after, (1626), Charles I. attempted to introduce an excise on provisions, but was thwarted in his design by the obstinate resistance of parliament.


—In 1643 the revolutionary parliament at Westminster established the first excise. The tax was laid on the manufacture and sale of ale, beer, cider and perry. The king and his parliament at Oxford soon followed the Westminster example. Both parties promised that the excise should be abolished at the close of the war. But when the time came it had proved to be too fruitful a source of revenue to be given up, and it has remained ever since a part of the financial system of Great Britain. In 1647 the excise was extended to meat, bread, salt, wine, sugar, tobacco, and other less important articles. Some of these articles (as wine and sugar) were shortly afterward relieved of taxation. In 1650 the excise yielded about £500,000. At the restoration, the produce of the excise was granted to Charles II. No essential change was made in the excise during the reigns of Charles II. and James II., although the amount realized from it constantly increased. When William III., however, ascended the throne and undertook the costly wars against France, not only was the excise on ale, beer, cider and perry increased, but malt, sugar and wine were added to the taxable articles. The sum realized from it now exceeded £1,000,000, and in Queen Anne's reign reached the sum of £1,600,000. The development of these indirect taxes was exactly similar to that of the customs duties. (See CUSTOMS DUTIES.) Every addition formed a special tax for a special purpose, so that at Anne's death there were twenty-seven branches. Among other objects taxed during Anne's reign, the following may be mentioned; leather, candles, parchment, hops, paper, pasteboard, soap, printed cotton, linen and silk goods, starch, gold and silver wire—During the peaceful reign of George I. war, of course, could no longer pass as an excuse for increasing the taxes, but the government and the aristocracy had so fallen in love with these indirect taxes which fell principally upon the shoulders of the common people and were comparatively easy to collect, that they advanced still farther along the course upon which the long parliament had entered. The number of branches rose to twenty-nine, and the average yield to £2,600,000 per year. The increase in the yield is to be attributed mainly to the increase of population and prosperity. The people, however, hated the tax bitterly; not merely because it made the necessaries of life dearer, but also because the administration was hateful and oppressive. Aside from the restrictions upon production and commerce which can not be separated from any tax on consumption, the needless complexity of the tax, the vast number of laws, the collection by farming, and the decision of disputes by dependent officers, caused wide spread hatred. It can easily be seen how these various influences worked hand in hand to excite public bitterness against the excise; how the obscurity, which necessarily followed from taxing the same object at several different rates and from the number of complicated and ambiguous laws, led to constant violations; how the avarice of the tax-farmers detected these; how these farmers sought to overstep the necessary restraints and to use them if possible to vex and oppress the public, and what an impression condemnations must produce that were made on account of unintentional or ignorant violations. The loud complaints made about this time produced such an effect that the system of farming the taxes was given up. The collection passed into the hands of government officials.


—But the government was not persuaded to limit the sphere of the excise at all; on the contrary, it was constantly enlarged. It was even allowed to encroach upon the field of the customs; without any other effect, however, than simply to increase the labor of the collectors and the vexations to which the public were exposed. In order to diminish smuggling which the high customs had greatly encouraged, certain duties were lowered and an excise also collected upon the articles. The duties on tea were lowered four shillings, on coffee two shillings, and an excise equal in amount to these items imposed. The importation of chocolate and manufactured cacao was at the same time forbidden, and an excise laid on their domestic manufacture. This separation of the imposts, after having been extended to tobacco and spirits, was finally given up in the year 1825.


—Of far greater importance than this event, so far as administration is concerned, was a plan which the famous Walpole proposed in 1733. It was no less than such an extension of the excise system as to do away with the necessity of all other taxes. The hope was expressed that by diminishing the number of taxes simplicity and economy could be obtained in the administration; that by abolishing the customs duties, particularly those on raw materials, and by introducing a régime of free trade, a new impetus could be given to commerce and industry, the necessaries of life could be cheapened, England could be converted into a vast free port, and finally, smuggling could be destroyed and the public revenues increased.


—This plan was not laid before parliament in its completeness at once, but the minister merely attempted to extend the excise to a new commodity; but the knowledge of his intention had gotten abroad, and excited a storm of opposition throughout the whole kingdom. The most exciting scenes occurred in parliament, and the house itself was fairly besieged by the people. The bitterness increased constantly. Walpole himself was in danger of violence. After an exciting contest the minister declared, that, as the law could not be executed without an army, even if parliament should pass it, he would rather give it up than insist on a tax which would endanger England's peace. The joy at the withdrawal of the bill was boundless. The victory of the people, as it was then considered, was celebrated throughout the kingdom with bonfires, illuminations and excesses of all kinds.


—The authorities are not even yet agreed as to the merit of the scheme. One party praises the grandeur of the plan to accomplish free trade, alleviation of industry, and simplicity of administration; the other party condemns the idea of shifting the burden of taxation entirely to the shoulders of the poor. We can not deny that the plan had an element of grandeur in it. It could only have been devised by an able man. But it is hard to see how the excise was to yield so much, if the rates were to be kept low and were not to be imposed on the necessaries of life. Nor is it clear that anything would have been gained if the smuggling had been simply transferred to the excise, and if the cost of living had been increased by increasing the taxes on the necessaries of life—With the rejection of Walpole's plan the English people had shown its reluctance to follow out the excise system to its utmost consequences. But the system was still retained and developed in such a way that it was certainly no better in its results than Walpole's plan would have been. For the advantages which his plan would undoubtedly have offered, namely, simplicity of administration and destruction of smuggling, were given up entirely, while they allowed the disadvantages of indirect taxation to develop themselves in their most objectionable forms. The great wars during the reigns of George II. and George III. compelled them to seek new sources of income, and driven by necessity they picked out the most productive, which were indirect taxes on consumption. At the same time instead of developing the direct taxes simultaneously, they even abolished the most important of all, the general land tax.


—Among the additions to the excise under George III. the most important were a tax on auctions and one on bricks. The rates were in the meantime constantly increased, so that the yield grew regularly from decade to decade, in 1792 to ten millions, in 1800 to fourteen millions, in 1810 to twenty-five millions, and even approached in subsequent years the sum of thirty millions sterling. The excise had now become the most important source of public revenue. This period, the last years of war and the first of the succeeding peace in the early part of this century, was the time when the excise flourished most. But it was also the time when the height of the excise began to be unbearable and in which men began to recognize its defects. Now also, as formerly, it shared the lot of the customs. Both imposts are indeed, aside from the economical effects of the customs, nothing but two branches of the same tree. At the same time with the reform of the customs, Canning began to reform the excise with the aim of producing lower prices for the necessaries of life, and thereby contentment among the laboring classes, and of establishing normal wages and thus cheapening production, and causing a revival of industry and commerce.


—The first commodities upon which the taxes were diminished were malt and salt (1822, 1823 and 1825), then followed glass (1825), cider and perry and brandy (1826), beer from which the tax was entirely removed (1830), printed cloths (1831), candles (1832), soap (1833), starch (1834), paper (1836). It will be seen that after 1830 their zeal in diminishing the taxes abated somewhat, and that it entirely ceased with the year 1836. In 1840, indeed, a general increase of 5 per cent. was resolved upon to cover the deficit in the budget. But the old system was no longer tenable, and with Sir Robert Peel the reform movement began again. The excise was diminished upon glass (1844 and 1845), on auctions (1845), bricks (1850), soap (1853). The war years 1854 and 1855 occasioned an increase in the malt tax, which was again reduced in 1857, and upon brandy which has never been reduced since, though the tax on brandy has been retained from other than financial considerations.


—The number of articles subject to the excise decreased gradually, so that in the year 1850 only malt, hops, paper, soap, brandy and sugar remained, of which the last is hardly worth mentioning as it produced next to nothing. Of these, soap, hops and paper have been freed from the excise.


—It is natural that the produce of the excise should sink under these reductions, and especially on account of the administrative reforms of 1825. It sank in 1830 to less than nineteen millions, and in 1840 to thirteen millions. But the practical rule that reasonable reductions in high taxes on consumption increase the revenue, verified itself here also. The income from the excise rose in 1850 to over fifteen millions, and in 1866 to over twenty millions. Of late years a new excise has been introduced, viz., that on substitutes for coffee. It was introduced, however, to counterbalance a duty laid upon coffee, so that the latter might not act as a protective duty. The taxes now classed under the head of excise include those on chicory, coaches, licenses, malt, race horses, railroads, brandy, and sugar. Some of these, of course, ought not to be classed under that head in a scientific classification, but the income from such articles is so small that it may be practically disregarded. The taxes on brandy and malt and the licenses to persons dealing in those articles amounted in 1866 to nineteen-twentieths of the produce of the excise.


—It would be interesting to consider the part that the tax on each particular commodity made of the whole amount, but the investigation would lead us too far. Worthy of note it is, however, that the excise, after a devious course of two hundred years, has at last become essentially what it was at first, viz., a tax on beer and brandy. We have given this somewhat lengthy sketch of the English excise, because it was the origin of our American excise. The statesmen of the time immediately following the revolution, when they introduced our first excise law, copied the English excise laws almost word for word so far as they dared, and English legislation and English history have been the sources from which all our legislation has drawn its inspiration.


—To show clearly the relative importance of the excise as a financial device, the produce of the English excise has been compared in the following table with that of the customs duties for a series of years, beginning with 1701:

Table.  Click to enlarge in new window.


The years printed to the left of the figures and in parentheses in the customs column show the year for which that item is given. The excise has even yielded a larger proportion of the net income than the above table would seem to show; for the customs items of each year contain large sums which were returned as rebates, paid out as premiums, etc., amounting, in some cases, to as much as £2,500,000. It will be seen that the produce from the excise generally exceeded that from the customs from 1780 down to 1825, though it will be remembered that for a hundred years preceding 1825, several items had been counted under the head of excise which belonged properly under the head of customs.


—The history of the excise in the United States is brief. The colonists had inherited from their English ancestors a hatred of this tax in any form. Pennsylvania, Massachusetts and Connecticut, however, had been forced from financial considerations to adopt an excise on spirits, and the latter state had even imposed a general excise upon the consumption of all foreign articles. But there was a great reluctance to allowing the national government to levy such an impost.


—Several states had joined in the first congress in recommending an amendment to the constitution, prohibiting the federal government from ever resorting to the excise. But in 1790, in spite of the repugnance exhibited by congress to such a measure, Secretary Hamilton, in an elaborate report, insisted upon the necessity of an excise. He proposed that it be limited to spirits, and aside from financial considerations, he urged the great injury inflicted upon the country by such enormous consumption of intoxicating liquors, and the great advantage it would be to diminish such consumption by high taxes. After a series of exciting debates the law was passed. A tax varying from nine to twenty-five cents per gallon, according to the proof, was imposed on spirits distilled from articles grown or produced in the United States, and a higher tax upon imported spirits. The law was modified in 1792 in the direction of lower rates. In subsequent years the scope of the tax was enlarged under the direction of Hamilton until it included carriages, refined sugars, snuff, auction sales, stamp duties on various instruments of exchange, and some other objects. The opposition to the law, which from the first had been powerful enough to prevent its execution in many portions of the country, finally broke out into open war in the so-called whisky insurrection in western Pennsylvania. After this disturbance was quieted, the country seems to have acquiesced in the payment of the tax. When Jefferson came to the presidency, however, he recommended that the whole system be abolished, and as the revenue from the customs was constantly and rapidly increasing, congress willingly voted for its abolition.


—When the war of 1812 broke out, it again became necessary to resort to the excise. In June, 1813, a bill was passed imposing a tax on distilled spirits in the shape of license money, an excise of four cents a pound on domestic refined sugar, twenty cents on each half-hundred weight of salt, $2 to $20 on carriages, 1 per cent. on auction sales, and a stamp duty of 1 per cent. on all instruments of exchange. These duties were all repeated in December, 1817, and no excise duty was levied by the United States government until the war of the rebellion necessitated a recourse to this measure.


—The present system of internal taxes was inaugurated July 1, 1862. It has embraced, since its origin, taxation upon occupations and trades; upon sales, gross receipts and dividends; upon incomes of individuals, firms and corporations; upon specific articles not consumed in the use: stamp duties, taxes upon various classes of manufacture, upon legacies, distributive shares and successions. It will be seen that the internal revenue system has included many different kinds of taxes. It furnished for a time the greater portion of the national revenue. In the article INTERNAL REVENUE will be found the receipts from 1792 to 1880 from the sources included under the head of internal revenue in the finance report for 1879. In the report above mentioned returns are made for the years 1804-13 and 1821-48. But in no one of these years did the produce amount to as much as $100,000, and that was not raised by means of an excise. Although the system adopted in 1813 was abolished as a system in 1817, yet some of the taxes were retained for a few years longer, but their yield was insignificant after 1820. As we have already said, the returns given in the table in the article INTERNAL REVENUE include also the produce of taxes which can not be classed under the head of excise. At present, however, nearly the whole of the internal revenue is raised by an excise duty on spirits and tobacco. These two articles yielded in 1875, for instance, over 89 per cent. of the total produce of the internal revenue system.


—It will be seen from the preceding sketch that the United States government has been forced to adopt a system of excise during or after each of the three great wars it has waged, and also that it gave up this system in the first two instances as soon as its financial necessities would permit. One reason for this policy of giving up the excise as soon as possible has been mentioned already, viz., the prejudice against such a tax inherited from the colonial period. Another strong reason lies in the fact that the protectionists have always worked earnestly for the abolition of every such tax, as they desire all national revenue to be raised by an impost on imported goods. It is perhaps too early to predict the fate of our present excise. As now constituted it is free from many of the objections which are urged against such taxes. But our revenue is now in excess of the legitimate demands of government, and the various parties opposed to the excise are planning to demand its abolition. Political tradition and prejudice, combined with the active influence of protectionism, will probably ultimately effect its overthrow in the United States.


—The other prominent nations of modern times all derive a large income from the excise. Nor in any of them does there seem to be any inclination to give up this fruitful source of revenue. The new German empire, which resembles our own government in many respects, is tending more and more toward raising all its revenue by indirect taxation, and the greater part of it by the excise. The following table shows the relation between the produce of the excise and the total revenue of four European nations:

Table.  Click to enlarge in new window.


—The economical effects of the excise are great and lasting. Like all indirect taxes on commodities, the excise will raise the price of the commodity in the long run by at least the amount of the tax. In most cases it will raise it by more than that amount. Adam Smith, and subsequently, John Stuart Mill, have described clearly the characteristics of an excise. Such a tax makes it necessary to impose restrictive regulations on the manufacturers or dealers in order to check evasions. These regulations are always sources of trouble and annoyance and generally of expense, for all of which, being peculiar disadvantages, the producers or dealers must have compensation in the price of their commodity. These restrictions also frequently interfere with the processes of manufacture, requiring the producer to carry on his operations in the way most convenient to the revenue, though not the cheapest or most efficient for purposes of production. Any regulation whatever enforced by law makes it difficult for the producer to adopt new and improved processes. Further, the necessity of advancing the tax obliges producers and dealers to carry on their business with larger capitals than would otherwise be necessary, on the whole of which they must receive the ordinary rate of profit, though a part only is employed in defraying the real expenses of production. The consumers, of course, must give an indemnity to the sellers equal to the profit they could have made on the same capital if really employed in production. In addition to this, it must be remembered that whatever renders a large capital necessary in a business really limits competition in that branch, and by giving something like a monopoly to a few dealers may enable them to keep up the price beyond what would afford the ordinary rate of profit. Finally, whatever raises the price of a commodity. ceteris paribus checks the demand for it; and since there are many improvements in production, which, to make them practicable, require a certain extent of demand, such improvements are obstructed and many of them prevented altogether. In all these different ways indirect taxes on consumption cost the public much more than the government realizes. Excise duties are, however, in some respects less objectionable in this regard than customs duties. Customs are levied ordinarily on the elements of a commodity before it is manufactured, as well as on the finished product; the excise, generally, only on the commodity ready for market. The latter, therefore, does not require such a long advance of capital as the former.


—The excise, levied on the necessaries of life, produces great and injurious effects on the whole national economy. It may lead to a permanent deterioration of the condition of the laboring classes or to a peculiar burdening of profits, which must be injurious to the increase of national wealth. Many authorities attribute the difference in prices between England and the continent to the high prices of the necessaries of life, brought about by the long-continued system of indirect taxation. And in spite of England's greatness there is little doubt that its middle classes to-day would be more numerous, and the chasm between the rich and the poor less deep, if it had not been for the peculiar form of the excise which for over a century shifted the burden of taxation to the shoulders of the poorer classes.


—The objections to the excise lose their force largely when it is imposed on only a few objects, and those articles of luxury. Of such a character is our present system of excise. Its opponents greatly exaggerate its defects. The hardship it inflicts, when confined to luxuries, as at present, is reduced to a minimum. It has been more economically collected than the customs, and its political and economical effects on the country are far less injurious than those of the former. Our own experience and that of other nations prove that a low excise on articles of luxury which are widely consumed is one of the most productive and one of the least objectionable of all indirect taxes. The history of America, as well as that of England, proves also that low rates are more productive than high rates, as the latter lead to evasion and fraud.


—The excise has often been fixed at a high rate from a desire to use it as a sort of sumptuary device. Adam Smith says that taxes upon luxuries act as sumptuary laws on the sober and industrious poor, and dispose them to moderate or to refrain altogether from the use of superfluities which they can no longer afford. He mentions, among other commodities, intoxicating liquors and tobacco as liable to be consumed in smaller quantities on account of high taxes. This question has been keenly debated in the United States. The prohibitionists, i.e., those in favor of forbidding the sale and manufacture of intoxicating beverages, have uniformly thrown their influence in favor of high duties. One thing is indisputable, that a low duty has been more productive than a high one. One party claims that this is proof that consumption increased under the low duty; the other, that fraud and evasion ran riot under the high duty. It may still be an undecided question whether sumptuary laws are ever of any value, but it would seem less disputable that financial schemes should stand or fall on their own merits instead of on their tendency to act as sumptuary devices—Compare INTERNAL REVENUE.


—LITERATURE. The standard works on political economy and finance all furnish more or less elaborate discussions of the excise. The general encyclopædias offer some valuable considerations upon the subject. W. Vocke's Geschichte der Steuern des Britischen Reichs contains a vast fund of information in reference to British taxation. The above sketch of the excise in England is based largely upon Vocke. McCulloch's Taxation and The Funding System, Tennant's The People's Blue Book, and Baxter's Taxation of the United Kingdom, are all valuable for the study of this question. The reports of the secretaries of the treasury, and, in late years, of the commissioners of internal revenue, are the most valuable contributions to this subject by Americans. The Germans have produced some valuable monographs on the subject during the last ten or fifteen years. Consult files of Conrad's Jahrbücher far Nationalœkonomie, 1867-81.


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