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On April 21, 2014, the United States celebrated Tax Freedom Day. This is the day when Americans have finally earned enough income to pay off Uncle Sam. <\/p>\n
Hard-working Americans and libertarians alike bemoan the burden of government, which makes us slave away for almost a third of the entire year just to pay the taxman. <\/p>\n
Except theres just one problem. From an economics point of view, Tax Freedom Day is hogwash. <\/p>\n
Suppose your pretax salary is $100,000 a year and your total tax rate is 30 percent. According to the math of Tax Freedom Day, that means that you pay $30,000 in taxes. But, according to Econ 101, this isnt actually what you pay because that $100,000 wasnt all yours to begin with. <\/p>\n
To see this, take the above example and imagine that all taxes dropped to zero. In that case, your pretax salary would be the same as your after-tax salary. Would your employer then pay you $100,000 a year? <\/p>\n
Not likely. <\/p>\n
Because, remember, when there were taxes, you were willing to work for $70,000 in take-home pay. If taxes suddenly vanished, you wouldnt suddenly start demanding $100,000 in take-home pay. Your salary would rise, but not all the way to $100,000. <\/p>\n
This is what is known in economics as tax incidence and its one of the very first things they teach you about taxes in Econ 101. <\/p>\n
The burden of taxes is split between employers and employees between buyers and sellers of labor. You may think you pay $30,000 in income tax, but actually your employer pays some chunk of that and you pay the rest. <\/p>\n
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Continued here: <\/p>\n
According to Econ 101, Tax Freedom Day is just a silly myth<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" ........................................................................................................................................................................................ Continue reading