Gongol.com Archives: February 2024

Brian Gongol

February 22, 2024

Business and Finance Taxing math

There is no such thing as a sales tax that only affects the seller. No matter how it is collected, or who cuts the check to the government, any tax on the sale of a good or a service is paid by the buyer and the seller alike. ■ How much is paid by which party depends mainly on who wants the exchange to happen more. Economists will call this elasticity, and the resulting distribution of who pays how much goes by the name of tax incidence. ■ But because any sales-related tax raises the price at which an exchange takes place, we can draw a tidy little graph to illustrate that both buyer and seller contribute to the ultimate cost of the tax. Nobody pays it all; nobody gets away without paying some. ■ Cutting the check isn't the same as paying the price. This fact is essential for anyone to understand before they try to engage in anything remotely close to economic analysis. Yet there are those talk as if only someone else pays for tariffs. This is not just nonsense, but actively malicious misdirection. ■ Tariffs are, after all, sales taxes imposed on imported goods. They are just as subject to the laws of economics as any other taxes -- which means that tariffs, too, are paid in some proportion each by both buyers and sellers. So when someone loudly floats a proposal for a 60% tariff as though it would be paid entirely by people living across the ocean, that reveals them to be either irredeemably dishonest or inexcusably ignorant.

@briangongolbot on Twitter