Tax Incidence

Some conservative Economists restated the claim that Business taxes were always shifted off on the Consumers yesterday. The CBO today suggested that the current Federal deficit could be reduced to $300b in this Fiscal Year. There was also major Speculation buying on the Markets today, to drive the price of Oil over $70/barrel. There was another article in the NYTimes which related the current Courts were allowing major Drugmakers to settle Suits with Generic drugmakers using a system of Payment to gain a Delay of Marketing by the Generic companies. What do all of the Above have in Common?

The first is a defense of the current Tax Code, which provides real Giveaways to Business Concerms (this should read the Heavy-Hitters, as Tax provisions give very little to Small Business). Economists will state it is an effective argument though, but is it? Transfer of Tax burden to the Consumers relies upon Product Price Elasticity in both the Short and Long Term. The ability to shift Tax burden, therefore, requires a degree of Product shortage or limited number of Product Producers under condition that Consumer Demand remains constant. The existence of Price Inelasticity incurs an unequal Shifting of Tax burden (no one has exact numbers, but this Author estimates less than 30% of a Tax increase can be shifted in the Shortrun, and some 30% cannot be shifted even in the Longterm). The Myth that Consumers have to pay all Taxes is ridiculous.

The great CBO Hope has to be swallowed in the light that there existed a Deficit Surplus when George W. Bush entered office. The current Administration will still be spending about a half-Trilion Dollars in excess of Federal Income, if this Scenario is maintained (something which is highly unlikely). There is need for Tax increases, especially at the Corporate level. It must also be remembered there are several reasons to Tax: raise Government revenue, channel Markets (Sin Taxes which this Author opposes), suppress risky Investment expansion which is popular, and curb Consumer exuberance. A very important consideration in deciding to Tax comes in the form of suppression of Market Speculation.

The lack of support in the Bush administration for pursuit of anti-Trust voliations comes mainly from the Bush political support from Corporations; this principally operating as lush political campaign contributions to President and Congress. Justice and Federal Trade Commission investigation of the Trading on the Oil Markets would likely find most of the Speculation which keeps the Price of Oil higher than the Economic Model matrix, of which would set the price of Oil around $40/barrel, probably comes from Front intermediaries for Oil Producers and Oil companies. The same could be said for the Market price of Gasoline which is over $2/gallon, when it should be about $1.40/gallon. The only proof this Author can provide, though, is the latest Energy Dept. report, which stated that Gasoline stocks and Refining capacity has increased, while Consumer Demand for Gasoline was flat over last Year.

The Whole as examined Above indicates all conditions derive from a faulty Tax Code, which does not Tax undue Profiteering, and allows sufficient Funds for Speculation without adequate Investment opportunity. lgl