Class Thirty Six

Two odds about tax:

i.                     Raising tax prevent otherwise mutually beneficial transactions from happening.

ii.                   I aim to make the producers to bear the burden, but the truth is the demanders also shared the burden.

The other costs of taxation that do not appear on the supply and demand curve. When we say tax is bad, we mean the deduction of valuable transaction that you place the wedge.

i.                     Bureaucrats are reluctant to any change/

ii.                   The time and effort spent doing and preparing the tax is too big, about 400 billion dollars per year. That's a great waste. It’s not productive activity.

iii.                  Tax can be misused.

The problem of tax is the deadweight loss part, and I’ll show you how to avoid that.

Sales tax: the legal liability of tax is upon the consumers.
The effect of sales tax and excise tax is identical.

When you post a tax on the buyers, it’s the buyers that are affected. The amount of demand will shift down just exactly the same amount of the tax.

You can charge tax whichever side you want, but all taxes are burden by both suppliers and producers. The economic incidence of tax is completely independent of legal incidence of tax.

Social security is actually paid by workers: the burden is determined by the relative elasticity of both suppliers and demanders of labor. The fact is more workers are inelastic, and firms’ demand for labor is really elastic under current international trade background. The more elastic of one part, the more destructive to that part.

What’s good tax policy? Your goal part is elastic and the other one inelastic (not really much deadweight loss)

*Slum sum: no marginal incentive change, but not good for the poor

Would you support that we should put all the tax only on things that the firms take the whole burden?
Answer: NO. Firms consist of shareholders and workers. We shift between the identities of consumers and producers, so the argument doesn't make any sense.

Subsidy can benefit both producers and buyers, and the more inelastic the curve is, the more benefit it can get.

But the subsidy doesn't mean the market will be better off.
Reason: Think about how people respond to incentive and opportunity cost of resources.
When there is a subsidy, the cost of the good is artificially lower, so producers shift resources, which have alternative uses, to make this product. But the low cost is merely an artificial phenomenon, so resources(whether land, workers, capital or time) that could have been used more efficiently are now used to make the product with the subsidy. That's a waste.

Besides, a subsidy may lead producers to overproduce (price now lose the role of signal) and deadweight loss will occur.

So subsidy, like tax, is still an intervention of market, which makes the price no longer the truth teller of market transactions.
Subsidy is mere another way of economic fallacy. What's seen is the prosperity of one field, what's not seen is its damage to fields that could have made the resources more efficiently.