Talk:Tax incidence

Untitled

I completely rewrote this article because it was both incorrect and offtopic. If you have comments, please make them! Mgunn 11:37, 19 December 2006 (UTC)

Wow - nice job.. I'll try to read through it later this week. I added some of the "See also" back in. Morphh ^(talk) 19:17, 19 December 2006 (UTC)

This article has a narrow perspective now, though the quality of the present article is quite good. Tax incidence is not just an economic term to describe the way in which employers and employees bear the burden of taxation, but in a broader perspective, the way taxes are distributed among social classes or economic groups. It's not just about the efficiency issue or the effects of taxation on wages and employment. It's also a crucial concept in political economy to understand the way the process of state-building was managed in the past: its winners and losers. I think that the article would be better including a section reviewing that literature on political economy and the politics of income distribution, imho. --poldavo 03:01, 29 January 2007 (UTC)

Sorry, I didn't realize that there is a process of merging and splitting articles to fill that article with the appropiate contents I was talking about in my previous comment. I find very adequate to incluide those general observations about progressive and regressive taxation inside that article. I will try to help with that. --poldavo 03:09, 29 January 2007 (UTC)

Neutral POV Issue

"Latter day neoclassical economics places too much emphasis on "comparative advantage" and insufficient emphasis on class distributions within the trading nations[3]"

Unless latter day Neoclassical economics is a completely discredited body of theory (for an expert: is it??), it seems that this sentence would be better if rephrased to describe the stances taken in neoclassical economics without commenting on whether or not they are correct. Perhaps something like: "Latter day neoclassical economics disagrees with this interpretation, and places more emphasis on comparative advantage between trading nations and less emphases on class distributions within trading nations."

Addendum: I suspect that this may be a symptom of the 'Controversy issues' discussed below. SteelSoul (talk) 18:08, 2 February 2009 (UTC)

I agree with you there. I've changed it as you have suggested. That section was recently added (Jan 2009) by Mikcob and I'm not sure that anyone has really looked it over. Morphh ^(talk) 20:17, 02 February 2009 (UTC)

The obsession with philosophies of economics is pathological. The question is simple: who is paying a tax and how. Bringing in the different a-priori viewpoints of old, untested philosophies shouldn't be part of the discussion. Rather, a model should be clearly presented with its predictions and empirical findings, or a claim should be accurately presented and cited with a peer-reviewed, rigorous academic paper which does the same.

Reference

• Phone Company Sends Text Message: Remit Payment for Service and Taxes This article may be useful. Morphh ^(talk) 14:59, 16 February 2007 (UTC)
• Tax Incidence, Tax Burden, and Tax Shifting: Who Really Pays the Tax? Another article that may be useful. Morphh ^(talk) 0:16, 25 July 2007 (UTC)

Using The Heritage Foundation, a conservative think tank, as a neutral reference may actually not be useful at all. Besides, who states the following: "Eventually, the tax incidence falls to the citizens in forms such as higher prices, lower wages, increased unemployment, decreased quality of goods, etc."? I see no valid reference. It is POV and not fact. Different taxes works differently; excise tax falls to the one buying cigarettes/alcohol/et.c, for example. Income tax may in specific cases "go backward" and require higher salary from the employer. The capitalist could be forced to cut his revenue, and last but not least: the state (or other collector of tax) will spend the tax money on something and very well DECREASE unemployment in some scenarios (for example employing people in the public sector, e.g. nurses to a public hospital, or buying goods and services from private companies). Kricke (talk) 22:15, 22 January 2008 (UTC)

Sources do not need to be neutral, only the presentation of the content. I'd even say it is important to have multiple biased sources from each POV, so long as they are reliable per policy. Just about every source has bias, our job is to try and present all sides and present it neutrally. I agree that a source should be found for the statement but it is the common viewpoint. Your examples still fall to citizens in some way. Businesses don't pay taxes, people do - they have revenue and expenses - taxes are an expense and offset like any expense, with higher prices, decreased investor returns, lower wages - it all falls to the individual(s). Excises fall to the purchaser of cigarettes - a citizen. Higher salary from the employer - a citizen. The captitalist could be forced to cut his revenue - a citizen. Organizations are made up of people, so at some point the incidence ultimatly falls to an individual - the worker, the buyer, the owner, the investor. This is often stated broadly as the buyer, worker, or producer and incidence can be split among any combination. While the state can certainly employee people with tax dollars, this is not what is considered in tax incidence. Perhaps this can be reworded in some way. I understand the point that is being made, just not sure how best to rephrase it. Morphh ^(talk) 3:49, 23 January 2008 (UTC)

You're right about sources, they don't have to be neutral if the purpose is to show the views of a particular political group, for example. But that depends on how it is used in the article. It should not be stated in a "fact-like" way. Kricke (talk) 11:29, 24 January 2008 (UTC)

You are also right that everything is payed by "a citizen" one way or another, by definition, because there are no other legal entities that counts. The statement, however, gives the reader the notion that "you will have to pay for all taxes", because it says "the citizens" (which includes everyone - and that is not a meaningful "group of people" when analyzing tax incidence), and the examples "higher prices, lower wages, increased unemployment" is biased, examples on things that everyone dislikes. It gives the reader the notion that all taxes misses the "intended one", and is payed by someone else, which is not true. Not all taxes create incidence (in a meaningful manner). I think that tax incidence can be used in two ways 1) to analyze who is actually paying for a tax, in order to get the intended "effect" of a particular tax 2) propaganda to lower the taxes, by using "tax incidence" look like a scientific way of saying that "you (even the poorest) are paying for this tax, and you will benefit of an overall reduction of taxes (even the richest)". The second should not be used in wikipedia, in my opinion. Kricke (talk) 11:30, 24 January 2008 (UTC)

And does not "tax incidence" also cover "who benefits from a reduction of a tax?" In Sweden, the government lowered VAT on books from 25% to 6%, in order to increase book-reading (or something like that). However, prices did not drop equally much, and bookstore keepers (probably) made a higher profit instead. Is this not the same thing, but "negative"? Kricke (talk) 11:30, 24 January 2008 (UTC)

I see what your saying and we should try to reword it to describe a meaningful group. I think the intent is to say that the incidence does not fall to the "business" as, like you stated, there are no other legal entities that count. It falls to a group of individuals and they may be the consumers, workers, or investors. With regard to the examples, it is mainly talking about business examples and I'm not sure what other outlets there are. What would be an example that people "like"? Taxes can be used for social engineering - some people may like that tobacco is priced higher due to taxes to reduce consumption. However, this outlet is still limited - a business only has so many things that it can do to pay for the expenditure. People may like where the incidence falls or the effect but I'm not sure if that is the same thing as an example of where such incidence can be placed in a business. I think if tax incidence is used in either #1 or #2 in a way that is significant, then we should include it in the article in a balanced way. I'd say #2 (class warfare in many cases) is used more often than #1. As for your last example, I would say that it describes where the incidence fell, as once the tax was removed, you could see lower prices (the incidence that fell to the consumer), which should follow supply and demand economics. The rest fell on the producer, in the form of reduced revenue. Once the tax was removed, the increase in capital could have been used for new business investments, paying off debt, increased inventory, increasing wages (to the owner or workers), etc. I think this is an example of tax incidence. Morphh ^(talk) 16:13, 24 January 2008 (UTC)

Another thing: I created the Swedish Wikipedia stub for this article. When I did, I did a small research, looking for example at Skatteverket's info (the Swedish equivalent of IRS) and some papers from Swedish universities, and they generally seem to define tax incidence as both intentional, i.e. indirect tax (like VAT and excise tax, in normative use) as well as unintentional effects. This article seem to only focus on unintentional effects? Perhaps there is a difference in definition in different countries, like the article on indirect tax mentions. Anyway, in Sweden, it seems "indirect tax" is intentional tax incidence in general use. If this is true for other countries >(I don't know), it should perhaps mention this? Kricke (talk) 20:45, 25 January 2008 (UTC)

Not sure, what is meant by unintentional and what is the difference between intentional and unintentional in what you read? You could intend for a tax to apply to one group but it then falls onto another, but that seems to be what is described by tax incidence - it shows where it falls regardless of intentions. I think intentions would be a form of politics. In most cases, I'd expect that the group taxed is the intended target of the tax - personal income taxes do a good job of this. So tax incidence (the reality of the burden) lines up with the intentions and there are no unintentional burdens. So I could see tax incidence being used to show intended and unintended effects of taxes but I don't know that tax incidence itself falls into such categories as it is the only the study of where a tax burden falls, or at least it is to my understanding.. but I could be incorrect. Morphh ^(talk) 20:58, 25 January 2008 (UTC)

You are correct, but here is what they say: They firstly draw a line between direct and indirect taxes (admittedly quite arbitrary, in some cases). The (normative) definition they use is: Direct taxes = income tax et.c, when the "by law" taxed person/company is meant to bear the burden (even if the employer, or bank if it is tax on interest, do the actual money transfer). Indirect tax = VAT, tobacco/alcohol tax, et.c, the "by law" taxed person/company is supposed to shift the burden on to someone else (the smoker, the consumer et.c). The idea of alcohol-tax may be to increase prices so that people don't drink as much. This is an intentional tax incidence. However, even direct taxes can have incidence, which is then unintentional. The study of tax incidence, of course, handle all forms of such. But the article could mention this difference, that some incidence is supposed to happen (indirect taxes) and some are not (direct taxes that is passed on to someone else). However, there may be a situation when cigarettes becomes to expensive because of the tax, so that people stop smoking if the producer don't lower its revenue, and then there is an unintended "direct tax" too. :) The point is that the examples under "Other practical results" all handle unintentional effects, and they are a bit "anti tax" biased and they don't have any references. All the examples is "fact like", and states that everything is passed onto the employee, car owner et.c, even that it is not certain (it depends on the market situation). Kricke (talk) 21:59, 25 January 2008 (UTC)

Controversy

I have edited the article to better reflect the fact that this area of public finance theory is highly contentous and disputed within the field, by expressly adding a section on "Controversy," (with appropriate sourcing) by phrasing practical conclusions in a manner that reflects a lower level of certainty, and by making clear that the Austrian School of economics (as acknowledge in the Wikipedia article on that subject) is a minority view within the field of economics despite its contributions and overlapping views with mainstream economists. I have also made some minor edits.Ohwilleke (talk) 20:48, 16 July 2008 (UTC)

I don't agree with creating a controversy section. It goes against WP:NPOV#Article Structure and other guidelines. If there are disagreements on certain aspects of tax incidence theory, they should be discussed under the appropriate section describing that theory. Tax incidence as a study in itself is not controversial, only disagreements on where the incidence falls based on particular models, as described by your paragraph. This need not be in a controversy section, just integrate it into the article where appropriate. Morphh ^(talk) 20:37, 18 December 2009 (UTC)

More Controversy

I have noticed that this article is not deficient regarding the accepted use of the phrase "tax incidence". The latter day neoconomists are very good at keeping reality out of the language. But consider an across the board tariff on imported goods of 5% funding a "citizen's dividend" (all tariff revenue equally redistributed to every taxpayer). In this case the increased price of the goods is offset by the dividend and the outsourcing corporations suffer the costs. (Foreign manufacturing suffers the cost no matter who "owns" the firm). The point I am attempting to make is that the elasticities are not the only determinate of who suffers the tax. It matters greatly what is done with the tax proceeds.

If we believe that firms are profit maximizing and that there is true competition within the nation then we could actually cut corporate income taxes in a revenue neutral application/respect of tariffs (instead of using a citizen's dividend). The tax savings will have been passed to the consumers because this tax cost is equal across the corporations. They can and will pass the tax breaks to the consumers because their competitors will attempt to gain market share by doing so. This latter observation is tied to "tax incidence" as described in the article.

I will endeavored to add a "tax burden" section to this article in that the phrase "tax burden" is redirected to this article and probably should be. But the two phrases are distinguished in a sort of macro micro way with the phrase "tax burden" considering more of what is done with the tax proceeds and the alterations in the whole economy more than the specific and direct producer-consumer relationships. The other observation is that much is made about how firms don't pay taxes and people do. Most folks equate people with consumers, but it isn't that simple. The shareholders/owners of a firm are also people. The "tax incidence" and "tax burden" discussion must consider class distinctions here. All persons are consumers. But not all persons are owners. --The Trucker (talk) 20:58, 6 December 2008 (UTC)

I'm sorry, but this section was wrong and needs to be rewritten. The incidence of the tax and the spending can be assessed separately. The incidence of an import tariff depends on the relative abundance/scarcity of factors and their mobility across industries in the short and long run. See for instance Heckscher-Ohlin model, Stolper-Samuelson Theorem, and the International_trade#Specific_factors_model.--Jsorens (talk) 14:23, 17 December 2009 (UTC)

I am not sorry at all and I have reinstated the paragraph on this subject of who actually bears the burden of an import tariff that is employed to the benefit of all domestic consumers and actual producers. The paragraph cites a source for this proposition. Leave it be. If others wish to offer a countervailing argument with references then they should do so. —Preceding unsigned comment added by Mikcob (talk • contribs) 21:50, 11 February 2010 (UTC)

It would appear that a tax of any kind on domestic production of consumables cannot be passed to consumers because the price of all goods is controlled by producers in other sovereignties. All producers are profit maximizing and if they could have increased their prices they would have already done so. If the apple producers attempt to raise prices then apples will be purchased from producers outside the tax jurisdiction. This same observation applies to all domestic taxation and especially to corporate taxation. All taxes are passed to land rent and labor because these are not mobile. REAL capital (fixed capital) can be and is developed outside the tax jurisdiction yet it is still protected by the US government. The only way to collect the proper tax to support the current FREE services of the world wide policemen is to collect it as an import tax.--The Trucker (talk) 06:29, 13 February 2010 (UTC)

Trucker, while the tax burden works differently for tariffs, it's impossible to shift all of the burden to foreign producers. Look at the graph on the Tariff article. Even if the gray square representing the tariff revenue is given back to consumers, the gain from the "citizen's dividend" would still be smaller than the loss of surplus due to higher prices caused by the tax. Some of the lost consumer surplus would be transferred to producers, but not all of it. There's still a Deadweight loss that no one gets. So the ultimate result of the tariff would be to decrease the wealth of consumers and increase the wealth of producers by a lesser amount. If supply and demand behave realistically, it is mathematically impossible for consumers not to come out behind, or for the gains to producers to outweigh the costs to producers. You could hypothetically argue that a transfer from consumers to producers is good for some other reason, but it wouldn't really have anything to do with tax incidence. —Preceding unsigned comment added by 168.16.132.59 (talk) 01:30, 4 May 2010 (UTC)

Interactive Graph

I created this interactive graph using Geogebra:

http://www.geogebratube.org/student/m12754?mobile=true

Might be useful to somebody. DS

92.27.92.71 (talk) 01:36, 3 July 2012 (UTC)

U.S. incidence graph

Institute on Taxation and Economic Policy estimate of the total effective tax rate for federal, state and local taxes (personal and corporate income, payroll, property, sales, excise, estate, etc.) by income level in 2011.

This graph was removed from the "Example" section because "the content does not provide anything to help the user understand the topic". Is it not an overall tax incidence graph for the entire U.S.? Does that caption and the source not make that clear? Is there an example of a graph which would better illustrate this article? Is there any reason this graph isn't the ideal illustration for this article? Does the graph not fit exactly with the definition given in the first two sentences of the article? —Cupco 20:35, 3 October 2012 (UTC)

No it doesn't. Why don't we read that first line. In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. This does not demonstrate a particular tax. It doesn't even demonstrate a single type of tax, not to mention from multiple tax authorities. Tax incidence does not equal effective tax rate. Read the article - at least read the section you're inserting the graph into. How does that image help the user understand the $1 Apple example, how the tax falls to the consumer or the farmer, and the price elasticity of demand and price elasticity of supply? It doesn't, it has no relation whatsoever - so stop inserting it. Morphh ^(talk) 21:02, 3 October 2012 (UTC)

So you are saying that it doesn't count because it represents the total incidence of all U.S. taxes? Doesn't that make it more useful for illustrating incidence in general? What advantages would there be to only illustrate one tax instead of the overall incidence? —Cupco 01:13, 4 October 2012 (UTC)

Dr. Baskaran's comment on this article

Dr. Baskaran has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

The article is factually correct. I would rephrase the introductory paragraph, i.e.:

"In economics, tax incidence or tax burden is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax. The key concept 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."

I would rephrase as follows:

"In economics, tax incidence or tax burden is the analysis of the effect of a particular tax on the distribution of economic welfare. The incidence of a tax is said to "fall" upon the group that ultimately bears the burden of the tax. This group is not necessarily the one that is supposed bear the tax burden according to the tax code. The key concept is that the tax incidence or tax burden does not depend on legal provisions but on the price elasticity of demand and the price elasticity of supply."

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Baskaran has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference : Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2014. "The effect of direct democracy on the level and structure of local taxes," ZEW Discussion Papers 14-003, ZEW - Zentrum fur Europaische Wirtschaftsforschung / Center for European Economic Research.

ExpertIdeasBot (talk) 18:40, 27 June 2016 (UTC)

Tax incidence on profit, not revenue

Since most current corporate tax issues are about tax on profits, this article, focussing almost entirely on tax on revenue or output, is pretty off-base. Mcdruid (talk) 07:41, 29 October 2017 (UTC)

Can you cite an example from the article? Most references to revenue are discussing tax revenue, not business revenue. If we include discussion on how a tax is applied, it should probably just reference the tax base, which would make the application broad. Morphh ^(talk) 12:32, 29 October 2017 (UTC)

The first paragraph of "Macroeconomic perspective" discusses a tax on apple production but sources a Tax Foundation article on the incidence of the corporate income tax. That's precisely what Mcdruid was talking about, if I understand correctly. Also, the Tax Foundation is yet another conservative source, moving the article as a whole further from NPOV when combined with the Heritage reference discussed elsewhere on this page. Finally, why does the article have virtually no citations? — Preceding unsigned comment added by 134.124.24.206 (talk) 16:03, 7 January 2019 (UTC)

Graphical analysis > Elastic supply, inelastic demand section is deeply flawed

Currently, the article's explanation of the case of elastic supply and inelastic demand is the following:

If, in contrast to the previous example, the producer is perfectly inelastic, he will continue producing the same quantity no matter the price. In case that the consumer is elastic; the consumer becomes very sensitive and weary of the price (Melville 24). A small increase in the price of something leads to a large drop in the quantity that is being demanded. The imposition of taxes causes the market price to have an increase from P without taxes. It rises to P with taxes. In most markets, elasticities of the supply and demand are similar to the short-run and result in the burden of the taxes that has been imposed. The tax that has been imposed is shared between two groups and in varying proportions. In general, the group that will have a greater tax burden is the one that exhibits greater relative inelasticity (Prasad 49). When there is an increase in elasticity in one place, the demand for the quantity changes so that it can suit the different needs that have been set by the tax burden. Tax burden, therefore, varies a lot with elasticity in materials.

The contrary "previous example" referenced is the case of inelastic supply/elastic demand, but this paragraph more closely reflects that case than the case it purports to explain. It asserts that "a small increase in the price of something leads to a large drop in the quantity that is being demanded," which is an oblique reference to elastic demand, not inelastic demand. The supply aspect of the paragraph is baldly incorrect—it explicitly mentions that "the [demander] is perfectly inelastic," not perfectly elastic.

Additionally, the paragraph contains at least one notable grammar error, as well as nonstandard (MLA-style/APA-style, not Wikipedia-style) citations to "Melville" and "Prasad," both of which are not further cited in the "References" section. In short, this seems to be a poorly written, improperly cited, and utterly incorrect explanation of how elastic supply and inelastic demand result in certain taxation conditions. Pjrule (talk) 15:44, 22 December 2017 (UTC)

The section on "other considerations" is wrong. It discusses a 7% tariff, and states that if the tariff revenue was redistributed as a tax rebate on income taxes, the country as a whole would break even. However, that is not the case. Part of the tax incidence will fall on foreign producers. Thus the home taxpayers will receive a net gain to their welfare. Warren Platts (talk) 21:46, 15 July 2018 (UTC)

@WarrenPlatts economic is not zero-sum, and accounting money/prices/tariffs/taxes will not tell the whole story. The idea that domestic consumers will receive a net gain from the tariff is impossible per theory of comparative advantage. EyesBlazedBright (talk) 15:45, 10 August 2023 (UTC)

Section on "Tax incidence without perfect competition" should be removed

This section is extremely poorly-written by a non-english-speaking author. It attempts to extend the analysis of tax incidence to imperfect markets, however this extension isn't even necessary. The canonical analysis of tax incidence is wholly determined by the price elasticities of market-aggregated supply and demand. Whether that market features a monopoly, monopsony, or any other configuration of buyers and sellers does not affect the aggregation of supply nor demand, hence this section shouldn't even be here.

The demand and supply for labor and tax incidence

This section is almost unreadable. The grammar and punctuation suggest to me that the author is not fluent in English. I can't improve it, because I don't know what it means.

I propose to blank the section.

MrDemeanour (talk) 08:38, 1 June 2023 (UTC)