I want to draw your attention to what to my eye is an excellent primer on tax incidence. Hat tip: David Henderson
One point the example doesn’t mention is that the tax results in a $50 deadweight loss or 1% reduction in total economic activity as a result of the tax.
Sethi counters.
http://rajivsethi.blogspot.com/2012/01/double-taxation.html
Steve
He’s talking about something different, steve. He’s not talking about the supply and demand effects which is what the article to which I linked explains.
Oops, sorry. Was responding to a different post by the same author. The one that Mankiw had recommended.
Steve
Yep, notice that the lost economic value is $950, the taxes are$900 and the resulting economic value is $4,050, so total economic value is $4,950. Prior to the tax total economic value was $5,000. That $50 is just lost…gone.
steve,
You are misreading Mankiw. Romney’s claim of 50% (15% and 35% are not additive) is bogus, but the 15% also probably doesn’t capture his full effective tax rate either.
Steve V- Agreed.
Steve