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Luxury Excise Tax on Passenger Vehicles, March 7, 2002 1 (March 7, 2002)

handle is hein.tera/crstax0174 and id is 1 raw text is: Order Code RS20314 Updated March 7, 2002 CRS Report for Congress Received through the CRS Web Luxury Excise Tax on Passenger Vehicles Louis Alan Talley Specialist in Taxation Government and Finance Division Summary Background Federal taxes on automobiles can be found as early as 1917. Not only were taxes applied to automobiles but also to auto trailers, trucks, trailers, buses, road tractors, motorcycles, tires, tubes, tread rubber, as well as parts and accessories. Over the course of many years, federal excise tax rates varied between 2% and 10%. These taxes were instituted to increase general revenues. It was argued that since federal expenditures for highways promoted development of the automobile as a means of national transportation, the industry and consumers should help in the support of the federal government through increased tax revenues. Several arguments were advanced against these taxes on autos. The primary arguments against this tax were that there were already a host of other taxes on autos (federal, state, and sometimes local gasoline taxes, as well as state and local property taxes, sales taxes, registration fees, etc.), that the tax could be seen as regressive for those with lower incomes, that it discriminated against those living in a rural environment, and that automobiles should no longer be considered an item of luxury but Congressional Research Service °0° The Library of Congress There is a long history of federal taxes on automobiles. The current luxury tax on passenger vehicles was reintroduced with passage of the Omnibus Revenue Reconciliation Act of 1990. At the time of its reintroduction, its purpose was to increase revenues to help reduce large projected federal budget deficits. Other luxury taxes were also introduced at the same time (boats, aircraft, jewelry, and furs) but have since been repealed. All of the luxury taxes were based on a sales price exceeding statutory amounts so as to shift the tax to upper-income individuals. Since passage of the 1990 act, the tax has been extended but at reduced rates, the statutory sales price has been inflation adjusted, and the subsequent installation of small dollar value parts and accessories are exempted from the tax. The tax rate is 3% for tax year 2002. The tax expires next year. The tax rate is applied to that portion of the sales price which exceeds $40,000. Revenues from luxury auto taxes exceeded $400 million in fiscal years 1999 and 2000. There are no plans to update this report.

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