The Incidence of Income Taxes

Abstract

For a considerable period it has been held by economists that the incidence of a general income tax is not shifted, and that such a tax has no tendency to raise or otherwise alter the prices of commodities. The most careful formulation of this theory, which, for convenience, I refer to as the older theory, can be found in the writings of Professor Seligman and Mr. Coates, and the same view of the matter was for the most part adopted by the Colwyn Committee on National Debt and Taxation which made its Report in 1927. In December of 1927 however, a very important article by Mr. D.H. Robertson appeared, which made it plain that the arguments on which the economists had relied to show that the incidence of a general income tax is not shifted, were erroneous. The whole matter was seen to require further investigation. The following two Chapters of part I of this book outline the older theory of the incidence of a general income tax and go on to criticise this theory. When it has been made clear that the older theory is no longer tenable, instead of proceeding direct to a. reconstruction of this theory we deal in Part II with the incidence of partial income taxes. This is partly on account of the interest and importance of such taxes in themselves and partly because an insight into the nature of these taxes seems likely to be helpful to an understanding of the incidence of a general income tax. In Part III the problem of the incidence of a general income tax is again taken up: to construct a theory of the incidence of a general income ta,x is the main object of this book. Part IV goes on to supplement Part III and deals with a number of related questions. Parts I, II and III can be read independently of one another; and if the student chooses he may omit reading Part I or Part II; or else,.if his interest be mainly in the incidence of partial income taxes, he may read Part II alone, Part IV should only be read after Part III.