Who Bears More of the Tax Burden

My thoughts on the deficit and taxes parallel Martin Feldstein, more or less. If new taxes are levied on an elastic good, such as fine jewellery, most of the burden would likely be shifted to the manufacturer, as a price increase can have a significant impact on demand for related goods. Elastic goods are goods whose replacement is close or immaterial. The authors noted that the impact of corporate tax differed by product and company. Cheaper property prices reacted almost twice as strongly to changes in corporate income taxes as higher commodity prices. Companies with higher leverage due to debt financing preferences in the tax code were less likely to pass on corporate tax changes to consumers. Finally, the impact on prices was strongest for products more likely to be purchased by low-income households, suggesting that corporate income taxes are likely to be less progressive than is generally claimed. However, workers with valuable skills are paid more because there is more competition for their skills and services. For example, well-paid individuals bear less payroll tax burden than employers.

The overall effect is that the tax impact of payroll taxes decreases more on low-income workers than on high-income workers. Taxes are an important source of revenue for the government. However, taxes reduce both supply and demand in the market because buyers have to pay a higher price and sellers get a lower price for their product. Sometimes the government tries to share the burden of the tax, as the federal government does with the payroll tax, where employers and employees have to pay half the tax, which is equivalent to 15.3% of the salary paid. Tell me that the intended goals of the Luxury Yacht Tax Congress were actually the worker and not the rich, or are you saying that there was a trivial difference between the goals (the rich) and who the burden of the tax fell (the worker)? Free transfers are transfers to recipients who do not provide compensation for the donation. In simple cases of free transfers, where taxes are levied on the recipient of the gift, the request for the gift would be almost completely inelastic, since the cost to the recipient is nothing. (I say almost, because the recipient can refuse the gift if the value of the gift to them is less than the tax.) However, in the real world, and especially in the US, taxing free remittances is more complicated. For example, the federal government does not have an inheritance tax, but it does have an estate tax. It also has a donation tax, but donation taxes are paid by the donor – not the recipient. In addition, the federal government provides a large uniform loan that can be used to offset both inheritance and gift taxes, so that significant assets can be transferred tax-free. Nevertheless, we will look at some simple cases of free transfers.

The allocation effort varies somewhat between the different categories of excise duty (Table 2). The most striking is the tobacco tax, where the proportion of taxes paid varies the least across income quintiles. The bottom quintile pays 16% of tobacco taxes and 18% of penalties under the Affordable Care Act (ACA) (compared to 4-5% of other excise taxes), while the top quintile pays 27% of tobacco taxes and 25% of ACA penalties (compared to about 45-50% of other excise taxes). Tobacco taxes and CBA penalties are the most regressive of the major federal excise taxes. The other categories differ only slightly. Excise taxes on air travel are primarily targeted at high-income households, with 52% paid by households in the top income quintile. Again, I will bring you back to comparative advantage. It seems to me that CA is an established economy (Krugman even writes that CA is true).

Yet there is perhaps no more political problem than CA, as we saw in the Schumer / Roberts article. It`s not political in the Democratic-Republican sense, but it`s political. Low-income households have been disproportionately affected by the pandemic-related economic downturn. As the economy continues to recover, lawmakers should be wary of measures that could further hurt this group. Instead of raising corporate taxes, they should consider other options to raise revenues and make the tax law more progressive. A government can tax a good or service to generate revenue. This will lead to lower producer and consumer surpluses and net weight loss. The tax burden is borne by the producer and the consumer and can be calculated according to various areas of the supply and demand graph for the good or service. Only if supply or demand was complete or inelastic does the tax burden fall entirely on the buyer or seller. Between these 2 extremes, the tax impact varies continuously from a perfectly inelastic supply or demand, where the seller bears the entire tax burden, to a perfectly elastic supply or demand, where buyers bear the entire burden. As can be seen in the charts below, the tax burden will fall more on the buyer if demand is inelastic or supply is elastic, but more on the seller if demand is elastic or supply is inelastic. The burden of an excise duty can be divided into two parts: (1) the reduction in real household income, which corresponds to the gross income from excise duty, and (2) the increase in the price of the taxed good or service relative to the prices of other goods and services, which depends on the composition of consumption in each household and is equal to zero in all households.

It is important that the decline in real income is the same, whether nominal incomes fall (keeping the price level constant) or whether the price level rises (maintaining nominal income constantly). This still leaves open the timing of the tax burden – that is, whether the burden is spread when the income is generated or consumed. Some distributional analyses follow the latter approach and allocate excise duties in proportion to the current level of consumption. Other analyses allocate the burden on the basis of current income. Under the revenue-based approach, excise duties can be considered a reduction in purchasing power at the time the income is generated. Of course, if all households consumed their income completely each year, both methods would produce identical results.

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