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Tax Incidence |
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People from various walks of life pay taxex to the governments. It may often happen that a particulat tax which has been realized by the government may not be spent equally to meet the demand of all the sections of the society. To understand the effect of earning of tax payer's money in the society it is necessary to understand how or in which pattern a government spend the income earned from various taxes. To understand the effect of a particular tax it is necessary to analyse the effect of a specific kind of tax in the society.
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This analysis by which one can understand the effect of a specific tax on the eco nomic welfare of the society is termed as tax incidence.It is an interesting fact of every society that not every segments of the society bear the burden of a particular type of tax. It has often been noticed that a particular segnent of the society bear the burden of a particular tax where as the tax implementing authority issued the tax not intending that particular group of people. There is a main concept behind the idea of tax incidence. The main idea or the key concept behind this idea of tax incidence is the source of tax collection may not be the actual payers of taxes. The tax issued for the sugarcane cultivators may not be actually paid by the surgarcane framers but by the ultimate users of the sugarcane like the consumers or the owner of the sugar mills.
To understand the idea of tax incidence it is necessary to understand the ideas like price elasticity of demand or price elasticity of supply. These two theories of Economics are very helpful to understand the idea of tax incidence. If the employees come under huge taxation they manage the situation by lowering the wages of the employees and also curtailing the various expenditures which they previously did for the benefit of the employees. Sometimes the employers overtly pass a portion of the increased tax to the various expenses borne by the employees. United States Social Payroll Taxes are paid by both the employees and employers of the United States of America. The employees bear at least half of the extra burden of the United States Social Payroll Taxes and the rest is payable by the employees of working in different sectors which have come under the effect of United States Social Payroll Taxes. The shifting of the burden of United States Social Payroll Taxes is an unique example of tax inc idence. In this case the burden of extra tax is actually falls on the employees or the tax incidence is actually borne by the employees where the tax was actually levied on the employers.
According to the Austrian economist Ludwig Von Mises the exact amount of the taxes paid by the different sections of the society is actually determined by the various forces of the market. Though apparently it may semed that the rate of the tax is determined by the tax authorities.
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