This week we discussed taxes and more specifically the split of the tax burden between the buyer and the seller, which is known as the tax incidence. I would like to propose the theory that the tax burden upon the buyer does not truly exist and it is instead only a tax burden on the seller.

We discussed the necessity of taxes to run a city, and therefore if we were to remove those taxes the city would require another form of funding to survive. Say for example that without the revenue from collecting taxes the city raised its fees for other services such as impact fees, utility fees, and other fees that affect not only businesses but residents as well. At this point both buyers and sellers would be directly affected by the fees and the sellers of a good would be able to incorporate those costs into their business plan to effectively set their prices. The buyers of goods and services would have less money to spend on these goods and services due to the fact that their everyday bills went up significantly.

With the tax system set up in its current form sellers set their prices to be at an efficient level and the buyers buy the amount that they need and/or can afford at that level. This sounds like a similar argument that we heard in class until you look at the price that a seller charge for their good or service. If a seller is able to charge more for their product or service then they are going to charge more for it. For example, a vendor could charge $5 for a t-shirt with a $2 tax included and make enough sales to do run a successful business. If we eliminate the tax then that same vendor would not be wise to only charge $3 for their t-shirt when they could charge the same $5 but not have to pay out the $2 in tax.

While I admit it is a bit out there in terms of analyzing the tax burden, I believe there is a potential theory in this line of thinking.