Thursday, May 17, 2012

Incidence of Taxation

Scott Sumner has another great post that includes this gem:

(I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations.  Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies.  By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20.  Go figure.)

People are easily confused about the incidence of taxation.  I have a hard time convincing my fellow landlords that in our competitive market the renter pays the property taxes. The landlords are outraged at the level of the property tax and they seem to want to stay outraged.  On the other hand the renters, who should be outraged, are completely unaware that they are paying the tax but at least when I tell them the light comes on.  Much of the art of modern democratic politics is to hide the costs from the majority of voters and show the benefits.

As an aside, the other day I was listening to a local radio show and one of our local politicians was going on and on about how the property tax more progressive than the sales tax as a self evident given and so we should suport the optional discretionary millage, but here in Florida there is something called the homestead exemption.  The homestead exemption, exempts the first, I think it is $60,000 of the value of a home owner's primary resident from taxation but most poor people live in rentals which are fully taxed, there rental market is very competitive here so the renter pays every dime.  This makes the property tax more regressive that it otherwise would be. On top of that food is exempt from the sales tax and poor spend more on food than others.  Bottom line it is not clear that the property tax in Florida is more progressive that the sales tax and I bet that that politician does not know either.

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