Tax shift

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Tax shift or Tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. [1] The term can refer to desired shifts, such as towards Pigovian taxes (typically sin taxes and ecotaxes) as well as (perceived or real) undesired shifts, such as a shift from multi-state corporations to small businesses and families. [2]

Contents

Introduced

Definition:

Tax shift is a kind of economic phenomenon in which the taxpayer transfers the tax burden to the purchaser or supplier by increasing the sales price or depressing the purchase price during the process of commodity exchange. [3]

1. Tax shift is the redistribution of tax burden. Its economic essence is the redistribution of national income of everyone. The absence of redistribution of national income does not constitute an active of tax shift.

2. Tax shift is an objective process of economic movement. It does not include any emotional factors. Whether taxpayers take the initiative to raise or lower prices or passively accept price fluctuations is not related to tax shift. Whether the economic relationship between the taxpayer and the tax bearer is a class opposition or the unity opposition, it is also unrelated to the tax shift.

3.Tax shift is achieved through price changes. The price mentioned here includes not only the price of the output but also the price of the element. The price changes mentioned here include not only direct price increase and price reduction, but also indirect price increase and price reduction. No price change, no tax shift.

It has the following three characteristics:

(1) It is closely linked with price increase and decrease;

(2) It is the redistribution of tax burdens among economic entities, and it is also a redistribution of economic interests. The result will inevitably lead to inconsistency between taxpayers and tax bearer;

(3) It is the taxpayer's proactive behavior.

Condition

In general, the existence of tax shift mainly depends on the following two conditions:

The existence of commodity economy

Tax shift is achieved through commodity price changes in commodity exchange. Without the existence of commodity exchange, there would be no tax burden. Therefore, the commodity economy is the economic prerequisite for tax shift. Historically, in a natural economic society based on self-sufficiency, products generally go directly from the production sector to the consumer sector without market exchange. During this period, agriculture is the main sector of the national economy. The state taxation is mainly a tax on land and land production. This part of the tax can only be borne by the landowner, and taxpayers cannot implement tax transfer. With the development of productivity, there has been the production of goods and the exchange of goods. In capitalist society, the commodity economy is highly developed. Under the conditions of commodity economy, the value of all commodities is expressed in the form of currency as the price. The exchange of goods breaks through the limitations of time and area and develops on a large scale. It opens up a vast space for the taxation of goods and commodity circulation. It also makes it possible to pass on commodity taxation, and commodity taxation is also passed back or indirectly through price changes.

The existence of a free pricing system

Tax shift is directly linked to the price movement, which is usually achieved by increasing the selling rate of sales goods and lowering the purchase price of the purchased good. Among them, the tax burden of some taxes can be directly passed on by changes in prices; the tax burden on some taxes is through changes in capital investment, which affects the supply and demand of commodities indirectly through the changes in prices. Regardless of which form of transfer is adopted, it depends on price changes. Therefore, the free pricing system is the basic condition for tax shift.

The free pricing system refers to a price system in which producers or other market entities can price themselves according to changes in market supply and demand. There are mainly three types of price systems: the government-instructed program price system, the floating price system, and the free price system.

Under the government's mandatory plan price system, the producers, operators and other market entities do not have their own pricing power, prices are directly controlled by the government, and taxpayers cannot pass tax burden through price changes.

Under the floating price system, the government determines the maximum price or minimum price of a commodity. Within the range of fluctuations, the producers, operators and other market entities have a certain amount of freedom in pricing, and tax shift can be realized within a certain extent and within a certain range.

Under the free pricing system, the producers, operators and other market players can freely set prices according to changes in the market supply and demand relationship, and the tax burden can be passed on.

Through the analysis of the conditions for the shift of tax burdens, we can conclude that basically there is still an objective shift of tax burden even if under the highly centralized program management system. After implementing the market economy system, there is an objective shift in tax burden. But the market economy is a highly developed commodity economy. Under this system, the production and business operators of goods and other market entities have their own independent material interests. Profitability has become the fundamental motive for all production and business activities, and the realization of tax burden transfer has become the subjective motivation and desire of various taxpayers. At the same time, with the continuous deepening of the reform of the economic system, the government has liberalized most of the pricing power, and the enterprises have a large amount of free pricing power. The free pricing system based on free prices has basically taken shape, and the conditions for the transfer of taxes have now been met. Therefore, the phenomenon of shifting the tax burden objectively existing in the commodity economy.

Changes in costs

The transfer of tax burdens is related to changes in costs. In the three situations of fixed, increasing and declining costs, tax transfer has different characteristics.

For goods with fixed costs, the tax burden may be all passed on to the buyer. Because the fixed-cost commodity does not increase or decrease its unit cost with the quantity of production. At this time, if the demand is inelastic, the tax can be added to the price to realize the transfer.

For goods with increasing cost, tax burdens can only be partially passed on. Because the unit cost of this commodity increases with the increase in output, the increase in the price of goods after taxation will affect the market. The seller has to reduce production to reduce the cost of products in order to maintain marketability, and thus the tax amount cannot be all passed on.

For goods with diminishing costs, the tax burden can be all passed on to the buyer. Because the unit cost of such goods decreases with the increase in output, if there is no demand elasticity for taxable goods, taxes can also be added to the price and passed on. Under some certain circumstances, taxes can not only be passed on entirely, but even more than the tax price benefit.

Proposed

The following table lists tax shifts that have been proposed or introduced:

Name, location, proponent, sourceFromToClaimed benefits
Green tax shift (see ecotax)various ecotax environment
Tax Shift for the Pacific Northwest (Durning & Bauman 1998) personal, corporate income tax, payroll tax, property tax, sales tax carbon tax, pollution tax, traffic tax, sprawl tax (Land value tax), resource consumption taxenvironment; public health; reduction of gridlock; countering

speculation; equity; administrative ease

Property tax shift (PTS) [4] sales, income, and buildings Land value tax housing supply; sprawl; equity
Philadelphians for Land Value Tax Shift [5] tax rates on structuresland-value taxeconomic development, countering speculation
Illinois [6] property taxindividual and corporate income taxextra unearned income for landowners
Mississippi [7] [8]

Tennessee [9]

Grocery or food taxcigarette taxpublic health; support for basic needs
Wyoming Tax Swap [10] sales tax, use tax, and business personal property taxflat income tax 
FairTax personal income tax, payroll tax, corporate tax, capital gains tax, self-employment tax, gift tax, estate tax national retail sales tax with rebateprovide tax burden visibility; reduce compliance costs; global competitiveness

Other uses

Tax swap can also refer to the sale of a security that has declined in price since its purchase and the simultaneous purchase of a similar but not identical security, in order to realize a loss for tax purposes while maintaining a position. [11]

See also

Related Research Articles

In economics, a free market is a system in which the prices for goods and services are self-regulated by buyers and sellers negotiating in an open market. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority, and from all forms of economic privilege, monopolies and artificial scarcities. Proponents of the concept of free market contrast it with a regulated market in which a government intervenes in supply and demand through various methods such as tariffs used to restrict trade and to protect the local economy. In an idealized free-market economy, also called a liberal market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

Microeconomics Behavior of individuals and firms

Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as whole, which is studied in macroeconomics.

Tax Compulsory charge imposed by government

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures. A failure to pay in a timely manner, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.

Inflation Rise in price level in an economy over time

In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualised percentage change in a general price index.

Deadweight loss Measure of lost economic efficiency

Deadweight loss, also known as excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced. Non-optimal production can be caused by highly concentrated wealth and income, monopoly pricing in the case of artificial scarcity, a positive or negative externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage.

This aims to be a complete article list of economics topics:

An ecotax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. Such a policy can complement or avert the need for regulatory approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes ; such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.

In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production and taxation.

In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. Because of the potential for cross-border controlled transactions to distort taxable income, tax authorities in many countries can adjust intragroup transfer prices that differ from what would have been charged by unrelated enterprises dealing at arm’s length. The OECD and World Bank recommend intragroup pricing rules based on the arm’s-length principle, and 19 of the 20 members of the G20 have adopted similar measures through bilateral treaties and domestic legislation, regulations, or administrative practice. Countries with transfer pricing legislation generally follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations in most respects, although their rules can differ on some important details.

Public finance Study of the role of government within the economy

Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:

  1. The efficient allocation of available resources;
  2. The distribution of income among citizens; and
  3. The stability of the economy.
Labour power

Labour power is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of working, labour. Labour power exists in any kind of society, but on what terms it is traded or combined with means of production to produce goods and services has historically varied greatly.

Indirect tax Type of tax

An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.

In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. Economists distinguish between the entities who ultimately bear the tax burden and those on whom tax is initially imposed. The tax burden measures the true economic weight of the tax, measured by the difference between real incomes or utilities before and after imposing the tax, taking into account how the tax leads prices to change. If a 10% tax is imposed on sellers of butter, for example, but the market price rises 8% as a result, most of the burden is on buyers, not sellers. The concept of tax incidence was initially brought to economists' attention by the French Physiocrats, in particular François Quesnay, who argued that the incidence of all taxation falls ultimately on landowners and is at the expense of land rent. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately suffers a loss from, the tax. The key concept of tax incidence is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. As a general policy matter, the tax incidence should not violate the principles of a desirable tax system, especially fairness and transparency. The concept of tax incidence is used in political science and sociology to analyze the level of resources extracted from each income social stratum in order to describe how the tax burden is distributed among social classes. That allows one to derive some inferences about the progressive nature of the tax system, according to principles of vertical equity.

Market (economics) System in which parties engage in transactions according to supply and demand

A market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and resource allocation in a society. Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale.

In economics, the excess burden of taxation, also known as the deadweight cost or deadweight loss of taxation, is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds (MCF). Excess burdens were first discussed by Adam Smith.

Tax policy choice by a government as to what taxes to levy, in what amounts, and on whom

Tax policy is the choice by a government as to what taxes to levy, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. The macroeconomic aspects concern the overall quantity of taxes to collect, which can inversely affect the level of economic activity; this is one component of fiscal policy. The microeconomic aspects concern issues of fairness and allocative efficiency .A country’s tax regime is a key policy instrument that may negatively or positively influence the country's economy.

Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient and a tax brings consumption closer to the efficient level.

Several theories of taxation exist in public economics. Governments at all levels need to raise revenue from a variety of sources to finance public-sector expenditures.

Taxation in Brazil

Taxation in Brazil is complex, with over sixty forms of tax. Historically, tax rates were low and tax evasion and avoidance were widespread. The 1988 Constitution called for an enhanced role of the State in society, requiring increased tax revenue. In 1960, and again between 1998 and 2004, efforts were made to make the collection system more efficient. Tax revenue gradually increased from 13.8% of GDP in 1947 to 37.4% in 2005. Tax revenue has become quite high by international standards, but without realising commensurate social benefit. More than half the total tax is in the regressive form of taxes on consumption.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

References

  1. ↑ "Will Canadians support this kind of change?". Sustainable Prosperity FAQs. Sustainable Prosperity.
  2. ↑ Leachman, Michael (2006-04-14). "The Great Corporate Tax Shift: Undercutting Oregon's Economy and Quality of Life".
  3. ↑ Weiyang, Long (2004). 财政与金融. Beijing，China: Tsinghua University Press. p. 32. ISBN   7302093547.
  4. ↑ Smith, Jeffery J.; Kris Nelson (December 1999). "Giving Life to the Property Tax Shift (PTS)". Redefining Progress.
  5. ↑ "Philadelphians for Land Value Tax Shift". Earth Rights Institute.
  6. ↑ Clements, Kate (2006-08-29). "Frerichs backs tax swap plan". The News-Gazette.
  7. ↑ "Title unknown". 2006-03-29.
  8. ↑ "Title unknown". 2006-10-18.
  9. ↑ "We did it! First-ever cut in state food tax passes!!!". Tennesseans for Fair Taxation. 2007-06-12.
  10. ↑ Glass, Brett. "The "Wyoming Tax Swap"".
  11. ↑ "tax swap Definition". InvestorWords. WebFinance, Inc.
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