Tax incidence information

In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. Economists distinguish between the entities who ultimately bear the tax burden and those on whom the tax is initially imposed. The tax burden measures the true economic effect of the tax, measured by the difference between real incomes or utilities before and after imposing the tax, and taking into account how the tax causes prices to change. For example, if a 10% tax is imposed on sellers of butter, but the market price rises 8% as a result, most of the tax burden is on buyers, not sellers. The concept of tax incidence was initially brought to economists' attention by the French Physiocrats, in particular François Quesnay, who argued that the incidence of all taxation falls ultimately on landowners and is at the expense of land rent. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately suffers a loss from, the tax. The key concept of tax incidence (as opposed to the magnitude of the tax) is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. As a general policy matter, the tax incidence should not violate the principles of a desirable tax system, especially fairness and transparency.^[1] The concept of tax incidence is used in political science and sociology to analyze the level of resources extracted from each income social stratum in order to describe how the tax burden is distributed among social classes. That allows one to derive some inferences about the progressive nature of the tax system, according to principles of vertical equity.^[2]

The theory of tax incidence has a number of practical results. For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, some economists think that the worker bears almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence is thus said to fall on the employee.^[3] However, it could equally well be argued that in some cases the incidence of the tax falls on the employer. This is because both the price elasticity of demand and price elasticity of supply effect upon whom the incidence of the tax falls. Price controls such as the minimum wage which sets a price floor and market distortions such as subsidies or welfare payments also complicate the analysis.^{[citation needed]}

^ "Fairness".
^ Pechman, Joseph A. (1985). Who paid the taxes, 1966-85?. Washington, D.C.: Brookings Institution. ISBN 0-8157-6998-9. OCLC 11495905.
^ International Burdens of the Corporate Income Tax

[1] "Fairness".

[:1-2] Pechman, Joseph A. (1985). Who paid the taxes, 1966-85?. Washington, D.C.: Brookings Institution. ISBN 0-8157-6998-9. OCLC 11495905.

[3] International Burdens of the Corporate Income Tax

Tax incidence information

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Tax incidence

Tax wedge

Corporate tax

Regressive tax

Indirect tax

Progressive tax

Payroll tax

Tax rate

Price elasticity of demand

Progressivity in United States income tax

Land value tax

List of taxes

Optimal tax

International tax planning

Direct tax

State tax levels in the United States

List of sovereign states by tax revenue to GDP ratio

Incidence

Tax bracket

List of countries by tax rates

Capital gains tax

Effect of taxes and subsidies on price

Tax withholding

Income tax

Proportional tax

Tourist tax

Ad valorem tax

Tax evasion