Failure Of Punitive Taxation

The Gun Violence Prevention and Safe Communities Act of 2018, introduced in Congress after February’s Parkland FL school shooting, would increase federal excise taxes on guns and ammunition. The twin ideas behind the bill: Discourage gun and ammunition purchases by raising their price and use the revenue to fund community-based policing, gun violence-reduction projects, and research on gun violence by the Centers for Disease Control and Prevention (CDC). Raising taxes to reduce demand for products causing external harms is a well-known concept among economists. When it comes to guns, raising the tax price might reduce the purchase of firearms. But it also may encourage some gun purchasers to avoid background checks and create a windfall for existing gun owners.

The federal government already imposes about $750 million in excise taxes on the import and retail sale of guns and ammunition. Handguns are taxed at 10 percent, and other guns and ammunition are taxed at 11 percent. The National Firearms Act of 1934 (NFA) established a then-prohibitive tax of $200 on the manufacture or transfer of short-barreled shotguns and rifles, machine guns, and firearm sound suppressors (silencers). It also established an occupational tax of $500 or $1,000 to import or manufacture firearms covered by the Act. However, these tax rates were not adjusted for inflation so are far less significant today. After inflation, the $200 machine gun tax would be around $3,700 today.

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