What is Tax Incidence?


A new report by the Tax Foundation examines the difference between tax collections and tax burdens.

On the one hand, you have data reported by the U.S. Census Bureau which is a tally of all tax collections. On the other hand, you have data reported by the Tax Foundation, for example, on tax burdens.
In a nutshell, the difference revolves around tax incidence which transforms tax collections into tax burdens. So tax incidence is the process of discovering which individuals in the economy actually bear the burden of a given tax. For example, businesses do not pay taxes, people do. Keep in mind that a “business” is just a piece of paper representing a nexus of people–the owners, the employees and the customers. Levying a tax on a “business” is really levying a tax on those people.
So the next time someone wants to increase a tax on “business”–ask them to explain their theory of tax incidence.
Comments/Questions: Email J. Scott Moody