Washington’s excise tax collections per capita rank the state No. 7 in the nation, according to the Tax Foundation. TF analyst Janelle Cammenga writes,
While income and consumption taxes are levied on a general base, an excise tax is a tax on a specific good or activity. You’ll typically see excise taxes on things like cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and pari-mutuels (betting), among other goods and activities.
So, just to be clear relative to a current discussion in the Legislature, an income tax is not an excise tax.
Washington, like many states, has often leaned on excise taxes to discourage certain behaviors (smoking, alcoholic beverages, and, in Seattle, soda pop) as well as to raise money rapidly. TF notes the internal contradiction in some excise tax efforts:
To increase the chances that these taxes can get approved, many proposed excise taxes come in the form of “sin” taxes on specified activities (such as smoking or drinking or gambling), so advocates can make a case around the health benefits that result when higher prices lead to reduced consumption. However, since reduced consumption naturally leads to a decline in tax revenue, the goals of raising revenue while reducing consumption are contradictory.
And, again, relevant to current discussion of tax policies, TF points out,
Excise taxes are levied on a relatively narrow tax base, and many are regressive, with a larger share of the tax burden falling on those with lower incomes.
A Washington Research Council report on our state’s tax structure documented the effect of high excise taxes and pointed out that the most frequently cited report on the regressively of the state tax structure overestimated the excise tax burden on low income taxpayers.
A more significant factor in the reported regressivity in Washington’s tax structure can be found in the state’s reliance on excise taxes… Included in this category are the gasoline tax, the public utility tax, and sin taxes such as the beer, liquor and cigarette taxes…
The reported estimates, however, are all too high, for the reasons explained below.
Read the report for the full explanation, which includes a discussion of underestimated income, overestimated consumption and misallocation of the business tax burden.