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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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Can States Close Budget Deficits
with Excise Tax Hikes?
• The coronavirus pandemic affects almost every source of state revenue, and
with the duration unknown, predicting economic outcomes will be difficult.
Social distancing, stay-at-home-orders, and quarantines make the resulting
recession fundamentally unique.
• Hospitality, leisure, and travel could be among the hardest hit industries. As a
result, excise taxes and fees on air travel and hotel rooms (occupancy taxes)
will plummet, jeopardizing funding for air traffic infrastructure projects in the
states as well as local spending funded by occupancy taxes.
• With people staying at home, fewer cars are on the roads. As of early April,
personal travel had declined 47 percent, which will lead to a significant
reduction in gas tax revenue in the states.
• Tobacco tax revenue may be relatively stable as consumption is not
necessarily affected by social distancing. But consumption overall is
decreasing, as is the tax revenue. The relatively new vaping taxes have
generally raised little revenues.
• Closures of bars and restaurants may affect alcohol tax revenue even
though off-premise sales (at liquor stores and grocery stores) had increased
in the early weeks of the pandemic. However, squeezing more revenue
out of alcohol excise taxes through increasing rates could impair bars’ and
restaurants’ ability to survive by hurting their margins when they reopen.
• Recreational marijuana and sports betting represent new revenue
opportunities for states. Many have alrea