Tax incidence

(noun)

The effect a particular tax has on the two parties of a transaction.

Related Terms

Examples of Tax incidence in the following topics:

  • Tax Incidence and Elasticity

    • 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.
    • Tax incidence refers to who ultimately pays the tax, the producer or consumer, and the resulting societal effect..
    • 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.
    • The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer.

  • Tax Incidence, Efficiency, and Fairness

    • Tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.
    • In economics, tax incidence 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.
    • In this example, consumers bear the entire burden of the tax; the tax incidence falls on consumers.
    • Policymakers must consider the predicted tax incidence when creating them.

  • Taxation Impact on Economic Output

    • Tax incidence falls mostly upon the group that responds least to price, or has the most inelastic price-quantity curve.
    • Tax incidence is the effect a particular tax has on the two parties of a transaction; the producer that makes the good and the consumer that buys it.
    • To understand how elasticities influence tax incidence, its important to consider the two extreme scenarios and how the tax burden is distributed between the two parties.
    • The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer .
    • This potential increase in tax could be called marginal, because it is a tax in addition to existing levies.

  • Comparing Marginal and Average Tax Rates

    • An average tax rate is the ratio of the total amount of taxes paid, T, to the total tax base, P, (taxable income or spending), expressed as a percentage.
    • Broadly, the marginal tax rate equals the change in taxes, divided by the change in tax base, expressed as a percentage.
    • A progressive tax is a tax in which the tax rate increases as the taxable base amount increases .
    • Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability-to-pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay.
    • A regressive tax is a tax imposed in such a manner that the average tax rate decreases as the amount subject to taxation increases .

  • Corporate and Payroll Taxes

    • Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities.
    • The taxes may also be referred to as income tax or capital tax.
    • The effective tax rate is the average corporate tax rate on the company's income and this takes into consideration tax benefits included in a current tax year.
    • Corporations are also subject to a variety of other taxes including: property tax, payroll tax, excise tax, customs tax and value-added tax along with other common taxes, generally in the same manner as other taxpayers.
    • Deductions from an employee's wages are taxes that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG).

  • Taxes

    • Examples of an indirect tax include sales tax and VAT (value added tax).
    • Progressive Tax: The more a person earns, the higher the tax rate.
    • Regressive Tax:In a regressive tax system, poorer families pay a higher tax rate.
    • Although a regressive tax system is never explicitly used, some claim a sales tax is a type of regressive tax.
    • Categorize types of taxes into ad valorem taxes and excise taxes

  • Financing State and Local Government

    • Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
    • State taxes are generally treated as a deductible expense for federal tax computation.
    • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
    • Property tax is generally imposed only on real estate, though some jurisdictions tax some forms of business property.
    • Property tax rules and rates vary widely.

  • Trading off Equity and Efficiency

    • Income taxes are a laddered progressive tax where income tax rates are set in income bands or ranges.
    • The purpose of a progressive tax system is to increase the tax burden to those most able to pay.
    • These individuals and groups support a flat tax or proportional tax instead.
    • Income tax is a progressive tax that assumes a regressive nature at the highest tax rate.
    • Explain tax equity in relation to the progressive, proportional, and regressive nature of taxes.

  • What Taxes Do

    • Taxes are the primary source of revenue for most governments.
    • Taxes are most readily understood from the perspective of income taxes or sales tax, although there are many other types of taxes levied on both individuals and firms.
    • Congress enacts these tax laws, and the IRS enforces them.
    • Governments use different kinds of taxes and vary the tax rates.
    • As a result, individuals earning a relatively lower income will pay a higher proportion of income in the form of sales tax, defining the regressive nature of the tax.

  • Financing the US Government

    • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
    • The following is a list of taxes in common use by governmental authorities:
    • Excise tax: tax levied on production for sale, or sale, of a certain good.
    • Sales tax: tax on business transactions, especially the sale of goods and services.
    • Capital gains tax: tax on increases in the value of owned assets.