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Encyclopedia > Tax incidence

First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. The Physiocrats were a group of thinkers who believed in an economic theory which considered that the wealth of nations was derived solely from agriculture. ... A tax is a compulsory charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution consequences associated with it. ...


Tax incidence also refers to the ultimate payer of a tax. If a government increases tax on petrol, oil companies may absorb it if competition is intense or they may pass it on to private motorists. A tax is an involuntary fee paid by individuals or businesses to a government. ... Competition is the act of striving against another force for the purpose of achieving dominance or attaining a reward or goal, or out of a biological imperative such as survival. ...


At the aggregate level, tax incidence has been used by political science and sociology to analyze the level of revenue extracted from each income stratum, in order to describe how is the tax burden distributed across social classes. It let to derive some inferences about the progressive nature of the tax system, according to some principle of vertical equity. Political science is a social science discipline that deals with the theory and practice of politics and the description and analysis of political systems and political behavior. ... Social interactions of people and their consequences are the subject of sociology studies. ... Social class describes the relationships between people in hierarchical societies or cultures. ... A progressive tax, or graduated tax, is a tax that is larger as a percentage of income for those with larger incomes. ... For equity as the value of an ownership interest in property, see ownership equity or shareholders equity. ...


Who pays the tax burden

In the United States, the Congressional Budget Office produces a number of reports on the share of all federal taxes paid by taxpayers of various income levels. Their data for 2002 shows the following: (Table 2) 2002(MMII) is a common year starting on Tuesday of the Gregorian calendar. ...

 * The top 1% of taxpayers by income pay 33% of all individual income taxes, and 22.7% of all federal taxes. * The top 5% of taxpayers pay 54.5% of all individual income taxes, and 38.5% of all federal taxes. * The top 10% of taxpayers pay 67.4% of all individual income taxes, and 50% of all federal taxes. * The top quintile pays 82.5% of all individual income taxes, and 65.3% of all federal taxes. 

Their numbers also show, that when broken down by quintile, the social insurance taxes are regressive on an effective tax rate basis only for the highest quintile, though that quintile pays the largest share of social insurance taxes (44%). (Table 1)


References

  • Pechman, Joseph A Who Paid the Taxes, 1966-85? (Washington, D.C., 1985) ISBN 0815769989.

See also


  Results from FactBites:
 
Tax Exemptions & Tax Incidence Report (5050 words)
A tax rate of 0.25 percent is applied to the apportioned tax base to determine the tax on taxable capital.
Tax payments and tax reports are due annually to the Comptroller of Public Accounts on May 15 and cover the taxpayer’s previous fiscal year.
A nonprofit corporation is exempt from the franchise tax if the corporation is organized and operated primarily to obtain, manage, construct, and maintain the common property in or of a residential condominium or residential real estate development and the collective individual resident owners control at least 51 percent of the votes of the corporation.
  More results at FactBites »

 
 

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