It is no accident that the products which tend to carry the greatest excise taxes, and in general any kind of taxes, are those that are inelastically demanded rather than supplied. Products such as gasoline, alcohol, and tobacco have high excise taxes in the U.S. because they are very inelastically demanded. This means that the taxes can be passed along to consumers without significantly harming the firms who produce these products, thus such taxes face less intense corporate lobbying than other taxes might.

    An example: A few years ago a tax on luxury boats (boats costing over US$100,000) was tried in the U.S. Naturally, for every reason, demand for such boats is very elastic. The result of the tax was to cause the sale of luxury boats to plummet, which in turn lead to significantly increased unemployment among boat builders. A tax meant to tax the rich became instead a tax on working-class boat builders, just as economists had predicted. The tax was eventually repealed.

Copyright © 1995-2004, Inc. - All Rights Reserved