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Response to DirkGently (Reply #19)

Sat Dec 19, 2015, 01:51 PM

42. I suggest you read up on Tax Incidence

https://en.wikipedia.org/wiki/Tax_incidence
Clarification

The burden from taxation is not just the quantity of tax paid (directly or indirectly), but the magnitude of the lost consumer surplus or producer surplus. The concepts are related but different. For example, imposing a $1000 per gallon of milk tax will raise no revenue (because legal milk production will stop), but this tax will cause substantial economic harm (lost consumer surplus and lost producer surplus). When examining tax incidence, it is the lost consumer and producer surplus that is important. See the tax article for more discussion.


Taxes on easily substitutable goods, such as oranges and tangerines, may be borne mostly by the producer because the demand curve for easily substitutable goods is quite elastic.


So, for the poor who have little wiggle room to substitute goods, we have the greatest impact on them absorbing the costs of any new tax. So, while the Lexus dealers might absorb some component of the taxes, it doesn’t change the central thrust of my statement that the consumer most certainly absorbs the taxes as well - and that for the poor, they are impacted the most.

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