Present excise taxes have, to a large extent, replaced what were once called direct taxes upon consumption. By the expression "direct consumption taxes'' was meant that the tax was placed upon the consumer of the commodity which was the basis of the tax. The use of this form of tax has existed from the beginning of revenue systems. The exaction of a share of the commodities which were produced somewhat resembled this form of levy. Later the taxes were levied upon particular classes of goods more with the idea of discouraging their use than with the hope of securing revenue. Had revenue been the primary object, the articles chosen would have been in the class of necessities instead of luxuries, as was usually the case.

The goods most commonly taxed were plate, furniture, horses, dogs, and servants; later houses were put in the same category. While levies on houses were regarded as consumption taxes, they perhaps more nearly corresponded to the modern concept of property tax. In modern times little use is made of this system, yet all are familiar with some close approximations which were used during and after the Great War. The tax which the purchaser was compelled to pay on theater tickets, railroad tickets, automobiles, and on many articles of wearing apparel which retailed for more than a certain amount, are well known examples. A large class of commodities which were regarded as luxuries also were subject to the tax.

Modern Excise Taxes. - This class of taxes has been replaced, to a large extent, by the modern excise tax which is levied upon the commodity in some stage of its production before it reaches the consumer. While the burden may be as heavy, it does not raise so much opposition, since the consumer does not realize that a tax is being paid. From the administrative standpoint, also, the modern excise tax is more desirable. Before the industrial revolution the majority of articles were domestically produced and consumed, and there was but the one place to levy the tax.

With the development of the factory system of production, however, the advantages of using the more indirect method of levying taxes upon commodities forced itself upon the attention of fiscal authorities. It is comparatively easy, for example, to place a tax upon one million articles at the place where they are produced, while it would be a task of no small proportions to collect it from each of the ultimate consumers. Where the direct consumption tax is used, moreover, because of administrative difficulties, it must be limited to a comparatively small list of objects, which usually have been luxuries. The demand for this class of goods is comparatively elastic, and a tax would drive the consumer to use substitutes-a feature which destroys the adaptability for fiscal purposes.

Shifting and Incidence. - The adoption of the excise method of levy, however, does not destroy the fact that the taxes upon commodities, wherever levied in the process of production, are usually burdens upon the consumers of the goods. Whether the tax will be shifted to its full amount will depend upon the principles which govern the shifting and incidence of taxes. A review of these principles, which were discussed in the chapter on "The Shifting and Incidence of Taxes," will be of benefit here.

The particular phase of shifting and incidence which is applicable to the present situation is the relative elasticity of supply and demand in the case of the taxed good. It may be possible, in the process of readjustment following the imposition of a tax, that the retail price of the commodity may not be raised by the amount of the tax, or may not be changed at all, if the supply be inelastic and the demand elastic. The current assumption, however, that taxes on commodities will be shifted to the consumer, is likely to be largely true. In the final result of the burden there may be little difference whether the tax be laid directly or indirectly - in either case the burden of a tax on commodities of consumption will usually rest on the consumer.