The True Cost of Taxation Is Much Higher Than Your Tax Bill
Taxes have a long reign near the top of discussion topics. But it can be striking how much nonsense and confusion is both advanced and accepted about taxation.
A good way to understand some of the basics of taxation better is by analogy to the game of dodgeball.
In the game of tax dodgeball, government is the one doing the ball throwing. Those in government always insist they don’t want to hit/hurt anyone, but their desire for tax revenue leads them to throw the burdens at citizens anyway. They have no resources of their own to finance what they want to do, only what they extract from their people. Of course, that means politicians’ constantly expressed intent to only help citizens becomes meaningless, because they hurt others anyway.
In any market, the dodgers are made up of buyers/users on one team and sellers/producers on the other. None of the “players” wish to be hit with the burdens of taxes, so they dodge. Their efforts at dodging are costly, so those costs (e.g., floor burns and injuries sustained) of playing the game also must be included in their burdens, along with the tax revenue extracted from them (in the tax version of dodgeball, those extra burdens are due to the reduced production and exchange that will take place in those markets, which wipes out the wealth that those mutually beneficial arrangements would have otherwise created). The players’ overall dodging success will determine the frequency with which someone will be hit, and the tax revenue the government will collect, while the buyers’ and sellers’ relative dodging ability will determine the proportion of the burdens each group will bear.
In the tax version, the ability to dodge is measured by what economists call the elasticity of demand (essentially, how easily buyers can dodge taxes by changing their behavior, particularly by shifting into substitutes for products whose taxes are raised) on the buyers’ side and the elasticity of supply (essentially, how easily sellers can dodge taxes by changing their behavior, particularly by shifting production into substitute products which don’t face increased taxes) on the suppliers’
Article from Mises Wire