Column: Economics decide who bears burden of taxation

Among the most malunderstood concepts in public policy is the economic incidence, or burden, of taxes. One unfortunate result is a good bit of bitterness and calumny over the subject of who pays their fair share of taxes. A bit better understanding is in order.

Taxes are collected through an administrative process. Property taxes are assessed against property owners, income and payroll taxes against income earners, inheritance taxes against heirs and sales taxes against consumers. However, the actual economic incidence of these taxes is only modestly influenced by the administrative process. In other words, it is the laws of economics, not government rules, that determine who bears the burden of taxation.

Corporate taxes provide a clear example. A corporation presumably pays taxes on its net income, so the naive among us suppose that those greedy stockholders pay the taxes.


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