What is an excise tax?

An excise tax is defined as a consumer tax applied to particular goods or services, typically those that are considered non-essential or that have negative externalities, such as alcohol, tobacco, and gasoline. This type of tax is usually included in the price of the product, making it somewhat different from sales tax, which is calculated as a separate charge at the point of sale.

By taxing specific kinds of merchandise, excise taxes serve to regulate consumption, discourage the use of certain goods, or generate revenue for specific governmental programs. For example, taxes on cigarettes are intended to discourage smoking while also raising funds for health care programs.

This understanding helps clarify the role of excise taxes in the economy and public policy, as opposed to other types of taxes, such as income tax, which is based on earnings, property tax, which pertains to real estate, or percentage-based taxes that apply uniformly to total purchases.