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Tax Incidence |
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While studying the economics we have come to know about this fact that tax incidence is the anatomy of the impact of the particular tax which is levied upon the distribution of economic welfare. Tax incidence is considered by the scholars to fall upon the group ,at the end of the day, which bears the burden of the tax. The sole conception is that the tax incidence or tax burden not only depends on wherefrom the revenue is collected, but also on the price elasticity of demand and price elasticity of supply.
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Though the conception is pretty confusing but an example will help to illustrate it accordingly. Such as a tax, if it is applied on apple farmers may actually be paid by owners of agricultural land or consumers of apples.
The tax incidence and its theory have a several types of practical results. As per example payroll taxes for United States Social Security are paid half by the employee and half by the employer. However, economists from all over the world are of opinion that that the worker is supposed to bear almost the complete burden of the tax because the employer passes the tax on in the form of lower rate wages. After that the incidence of tax is casted over the employee.
Though we have already given certain examples to understand the matter of tax incidence, but if more clarification can be given, then it will really be quite beneficiary for you to understand the matter of tax incidence. Directly or indirectly, the burden from taxation is not just the quantity of the payment of tax, but there are various types of magnitude for the lost consumer surplus or producer surplus. A serious reader of this matter shall find all these factors quite inter connective. As per example, if there is imposition of $1000 tax for per gallon milk, then it is not going to give rise to no revenue because milk production in a legal way will never stop, but this tax will definitely result in the substantial economic harm which is the lost consumer surplus and lost producer surplus. When as a payer of tax you are going to examine the tax incidence, the factors which are becoming important are the lost consumer and producer surplus.
There are a broad spectrum practical results in relation to the theory of tax incidence. Such as:
- If it is under the requirement of the government that the employers are needed to provide employees with health care, then as per result the burden of this will fall almost completely on the employee because the employer is supposed to pass on the burden in the form of lower wages.
- In the business sector it has been observed that the factors of businesses are more sensitive to wages in comparison with the employees, payroll taxes, employer authorizations, and other taxes collected from the employer finish up being born by the employee. The tax is then delivered to the employee in the form of lower wages.
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