Page 668 - Economics

CONFIRMING PAGES

CHAPTER 29
577
Public Choice Theory and the Economics of Taxation
TABLE 29.2 The Probable Incidence of Taxes
Type of Tax Probable Incidence
Personal income tax The household or individual on which it is levied.
Corporate income tax Some economists conclude the fi rm on which it is levied bears the tax; others
conclude the tax is shifted, wholly or in part, to consumers and resource suppliers.
Sales tax Consumers who buy the taxed products.
Specifi c excise taxes Consumers, producers, or both, depending on elasticities of demand and supply.
Property taxes Owners in the case of land and owner-occupied residences; tenants in the case
of rented property; consumers in the case of business property.

would be reflected in the price the buyer is willing to offer Table 29.2 summarizes this discussion of the shifting
for the land. and incidence of taxes.
Taxes on rented and business property are a different
story. Taxes on rented property can be, and usually are, The U.S. Tax Structure
shifted wholly or in part from the owner to the tenant by Is the overall U.S. tax structure—Federal, state, and local
the process of boosting the rent. Business property taxes taxes combined—progressive, proportional, or regressive?
are treated as a business cost and are taken into account in This question is difficult to answer. Estimates of the distri-
establishing product price; hence such taxes are ordinarily bution of the total tax burden depend on the extent to
shifted to the firm’s customers. which the various taxes are shifted to others, and who
bears the ultimate burden is subject to dispute. But the
majority view of economists is as follows:
• The Federal tax system is progressive. About one-
GLOBAL PERSPECTIVE 29.1 third of filers of the Federal income tax owe no tax at
all, and the average rates for the others rise with in-
Taxes on Goods and Services as a Percentage of come. In contrast, Federal payroll taxes and excise
Total Tax Revenues, Selected Nations taxes are regressive. But the overall Federal tax rate
A number of industrial nations rely more heavily on goods and is progressive. This rate is found by dividing the total
services taxes—sales taxes, value-added taxes, and specific of Federal income taxes, payroll taxes, and excise
excise taxes—than does the United States. (A value-added tax taxes by income. In 2004, the 20 percent of families
applies only to the difference between the value of a firm’s with the lowest income paid an average overall Fed-
sales and the value of its purchases from other firms.)
eral tax rate of 5.2 percent. The 20 percent with the
Taxes on Goods and Services highest income paid a 23.8 percent rate; the top
(Percentage of Total Tax Receipts) 10 percent paid 24.9 percent, and the top 1 percent
2
0 5 10 15 20 25 30 35 paid 26.7 percent.
United Kingdom • The state and local tax structures are largely regres-
sive. As a percentage of income, property taxes and
Netherlands
sales taxes fall as income rises. Also, state income
Germany taxes are generally less progressive than the Federal
Italy income tax.
• The overall U.S. tax system is slightly progressive.
Sweden
Higher-income people carry a slightly larger tax
Canada
burden, as a percentage of their income, than do
France lower-income people.
Caution: While the U.S. tax system does not substan-
Japan
tially alter the distribution of income, the system of
United States
Source: Organization for Economic Cooperation and Development,
2
www.oecd.org/ . Data are for 2002. Effective Federal Tax Rates under Current Law, 2001 – 2014, Congressional
Budget Office, August 2004.

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