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.
The Gun Violence and Safe Communities Act would increase federal excise tax rates to 20 percent on guns and 50 percent on ammunition. Since some semi-automatic centerfire rifles cost less than $400, that implies a tax of $80 or less. The tax on 9mm ammunition, which sells for as little as 15 cents per round, would be 7.5 cents or less. The bill would raise the $200 NFA tax to $500, double the occupational taxes on manufacturers and importers to $1,000 and $2,000, and index those taxes for inflation.
Right now, very little is known about how gun purchasers respond to excise taxes. A recent RAND study found that hunters are not responsive to price changes in the form of higher license fees. If all gun purchasers are like those hunters, raising taxes will have little or no effect on gun sales.
What if gun purchasers do respond to tax increases? That could have the perverse effect of discouraging the use of background checks. Here’s why: Because private gun sales are exempt from the excise tax, current gun owners can sell firearms for less than retail stores that must pay the tax. And increasing the excise tax would only widen that price difference. In states that do not require background checks for private sales, the new levy could act as an effective tax increase on background checks, strengthening the incentive for gun purchasers to avoid them. If gun purchasers respond by switching to private sales, the price of those guns would likely increase, providing a windfall for existing gun owners (paywall).
Would taxing ammunition reduce gun violence? It might dissuade a few people who are ambivalent about purchasing a gun. And since some of them might misuse the weapon, it could reduce gun violence slightly. But the tax would fall most heavily on high-volume users such as target shooters rather than those who purchase a gun and a small number of cartridges. Ammunition excise taxes would have no effect on existing gun owners who intend to commit suicide via firearm. According to the CDC about 60 percent of gun deaths in 2016 were suicides.
A gun and ammunition excise tax may sound attractive to those who want to limit gun ownership. And the idea of using taxes to correct externalities (including the medical and other societal costs of gun violence) is appealing to economists. But such taxes need to be effective. And, unfortunately, proposals to raise gun-and-ammo taxes may fail that test.
