The theory of tax incidence has a large number of practical results, although economists dispute the magnitude and significance of these results:
* Because businesses are more sensitive to wages than employees, payroll taxes, employer mandates, and other taxes collected from the employer end up being borne by the employee. The tax is passed onto the employee in the form of lower wages.
* If the government requires employers to provide employees with health care, some of the burden will fall on the employee as the employer will pass it on in the form of lower wages. Some of the burden will be borne by employer (and ultimately the customer in form of higher prices or lower quality) since both the supply of and demand for labor are highly inelastic and have few perfect substitutes. Employers need employees largely to the extent they can substitute employees for machines, and employees need employers largely to the extent they can become self-employed entrepreneurs. An uneducated population is therefore more susceptible to bearing the burden because they are more easily replaced by machines able to do unskilled work, and because they have less knowledge of how to make money on their own.
* Taxes on easily substitutable goods, such as oranges and tangerines, may be borne mostly by the producer because the demand curve for easily substitutable goods is quite elastic.
* Similarly, taxes on a business that can easily be relocated are likely be borne almost entirely by the residents of the taxing jurisdiction and not the owners of the business.
* The burden of tariffs (import taxes) on imported vehicles might fall largely on the producers of the cars because the demand curve for foreign cars might be elastic if car consumers may substitute a domestic car purchase for a foreign car purchase.
* If consumers drive the same number of miles regardless of gas prices, then a tax on gasoline will be paid for by consumers and not oil companies (this is assuming that the price elasticity of supply of oil is high, which is incorrect. In this case both the price elasticity of demand and supply are very low). Who actually bears the economic burden of the tax is not affected by whether government collects the tax at the pump or directly from oil companies.
Tax incidence - Wikipedia, the free encyclopedia