Authors libby rittenberg 813
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People with lower incomes generally devote a larger share of their
incomes to consumption of goods covered by sales taxes than do people
with higher incomes. Sales taxes are thus likely to be regressive.
Excise Taxes
An excise tax is imposed on specific items. In some cases, excise taxes are
justified as a way of discouraging the consumption of demerit goods, such
as cigarettes and alcoholic beverages. In other cases, an excise tax is a kind
of benefits-received tax. Excise taxes on gasoline, for example, are typically
earmarked for use in building and maintaining highways, so that those
who pay the tax are the ones who benefit from the service provided.
The most important excise tax in the United States is the payroll tax
imposed on workers’ earnings. In 2007, the payroll tax was 12.4% and was
levied on incomes up to $97,500. The Medicare portion of the payroll tax,
2.9%, was levied on all earned wages without limit. Half of the payroll tax
is charged to employers, half to employees. The proceeds of this excise on
payrolls finance Social Security and Medicare benefits. Almost two-thirds
of U. S. households pay more in payroll taxes than in any other taxes.
Tax Incidence Analysis
Next time you purchase an item at a store, notice the sales tax imposed by
your state, county, and city. The clerk rings up the total, then adds up the
tax. The store is the entity that “pays” the sales tax, in the sense that it
sends the money to the government agencies that imposed it, but you are
the one who actually foots the bill—or are you? Is it possible that the sales
tax affects the price of the item itself?
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
813
