A "sales tax" taxes a sale. Hence the tax is on the price of the article, this is a tax on an article and a tax on a tax no matter how you cut it.
Such spin.
A tax rate is what one applies to calculate the amount of a tax, always.
One uses a tax inclusive rate to calculate the amount of tax that is presumed included within final payment for goods or service such as that amount that must be tendered by the consumer in order to perfect his claim on products he receives.
One uses a tax exclusive rate with regard to price that has no tax included )e.g. the producers price) to determine the amount of tax to add on to obtain the final tax included payment to be tendered for the product by the consumer.
Either way the amount of any given final payment tendered to receive ownership of goods sold, includes the tax as well as the value of the base untaxed item is the same for any given product in an excise tax situation wether that exise be on goods or services.
In fact that is the forla; relationship between consumer price and producer price of a supply/demand equilibrium with an excise levied, which you, who claim to be trained in economics should well know.
| Algebraic Solution of Linear Supply and Demand Models R. Wigle Director Masters Program in Business Economics Wilfrid Laurier University May 9, 2001 http://info.wlu.ca/~wwwsbe/faculty/rwigle/ec238/ref/pe-algebra.pdf
|
A more graphical explaination of the relationship between excises imposed, the price received by sellers (i.e. the producer), and the price paid by consumers(total cost to consumer for goods or service) can be found here:
| http://www.economist.com/surveys/PrinterFriendly.cfm?Story_ID=850962 The hidden cost of taxes THE first diagram shows a demand curve and a supply curve for some hypothetical good. Usually, as the price of a good comes down, the quantity demanded increases; the demand curve therefore slopes downwards from left to right. Usually, as the price of a good goes up, the supply of it rises too; so the supply curve slopes upwards. With buyers and sellers free to trade, a balance of supply and demand will be established at the point where the two curves cross—point X, where the price is P and where the same quantity, Q, is both demanded and supplied. That point of equilibrium gives the market’s answer to how much of the good will be traded and at what price.
Turning to the second diagram, the shaded area between the demand and supply curves, to the left of the point where they cross, has a special significance, because it represents the net addition to social welfare that is created when the good is bought and sold at the market price. If you divide the area into two, the upper part, A, represents the so-called consumer surplus. Every unit of the good sold when supply equals demand—the whole of the quantity Q in the diagram—is sold at the market price, P. But smaller quantities of the good could have been sold for more than P. Only for the last (or marginal) unit sold is P the top price the consumer would be willing to pay. In effect, therefore, all but that last unit have been sold for less than they are worth to the consumer. The area A adds up all these surpluses, unit by unit, showing the value of all the transactions to consumers over and above the price they paid. By the same logic, the lower part of the area between the demand and supply curves in the second diagram, B, represents the producers’ surplus. Only the last unit supplied costs its producer exactly P. Other producers would have been willing to supply at a lower price, enough to deliver some smaller quantity of goods to the market. When these not-on-the-margin units are sold at the market price, their producers are paid more than they would have been willing to accept. The area B adds up all the producer surpluses.
The third diagram shows what happens when a tax is imposed, raising the price paid by consumers from P to Pc, and lowering the price received by suppliers to Ps. At these new prices, Qt is demanded and supplied. The amount of the tax (the difference between Pc and Ps) multiplied by the number of units sold (Qt) gives the revenue raised for the government (area C in the diagram). Both the consumer surplus, A, and the producer surplus, B, are accordingly smaller than before. That was to be expected. The point is, though, that the two surpluses, added together, have shrunk by more than the amount taken away in tax. Now that the quantity of goods supplied has fallen to Qt, the triangle D has disappeared: it is not part of the government’s tax yield, and it is no longer part of the economic surplus; it has simply vanished. This part of the reduction in the surplus is a pure loss to the economy, known in the jargon as the deadweight cost of the tax. The implication is that if the government raised the area C in taxes and then handed the money straight back as lump sums to consumers and producers, the economy would still be poorer than before because the area D would still be missing.
In the last diagram the tax is twice as big as before. The price to consumers has increased once more, and the quantity supplied has fallen further. The consumer and producer surpluses are also smaller. The government’s tax revenue, C, may quite possibly be smaller too, despite the higher tax rate, because of the smaller quantity traded. The deadweight cost, however, has increased fourfold. If the demand and supply curves were indeed curves rather than straight lines, the relationship between tax rise and pure economic loss would not be quite so simple. But the basic point would be the same: in general, the deadweight cost of a tax rises exponentially as the tax goes up. |
