Leaving Money on the Table: Potential State Revenues From Taxing Firearms

Abstract

State governments levy special taxes on many products and services to generate public revenue, but until recently, none have assessed, or even considered, an ad valorem excise tax on the sale of firearms. And while some research has examined the potential revenue effects of raising the firearms tax at the federal level, no economic analysis has investigated the possible state revenues that could be generated by taxes on guns. The present note addresses this gap in the literature. We derive a revenue-maximizing excise tax rate on guns for each state and calculate that it would increase tax revenues by approximately $1.3 billion annually across all states. Recognizing that the revenue-maximizing rate may be politically infeasible, however, we also estimate the potential state revenue from taxing firearms at rates similar to those assessed on other goods. The majority of states would benefit most by taxing guns at rates comparable to those on cigarettes, though some states would gain more by taxing firearms at the rates they currently levy on gasoline, sports betting, vaping, cannabis, or lodging.

JEL codes: H71, L64.