More on Taxation
Because taxes cause a reduction in the quantity supplied, they don't generate the estimated or needed revenue that warranted their creation. We also lose $400 billion per year through opportunity costs involved with doing our taxes. The economic incidence of a tax is completely separate from the legal incidence of a tax. This means that a tax placed on a firm may actually end up costing the consumer more money because the cost to the firm has to come from somewhere. There's a specific type of tax--a payroll tax--that we say firms and workers split. This isn't true because all this tells us is who has to write the check, it says nothing about who actually pays. Because corporations are people, raising an employer's cost will actually cost the worker. The relative elasticity of supply and demand determines who pays.
Good tax policies apply taxes to goods where there's an inelastic demand for them. This way, there's no dead weight lost because buyers and sellers don't change their behavior. You don't want to implement regressive taxes, or taxes that place the most burden on the poor. The same theory about taxation can be applied to subsidies.
No comments:
Post a Comment