We started talking about Taxes and the Economic Incidence of Supply & Demand and how that changes an application....
First, an excise tax means that sellers are legally responsible to give tax to the government. This means that to make the profit that the seller needs to they must charge a price that helps them both benefit and pay the excise tax. The main problem with taxes is that it east away at potential trade/exchange of a transaction. It is dead weight loss, taxes prevent mutually beneficial trade.
When looking at sales tax we try to make the buyers pay the tax again. Taxes are really transfers neither good or bad, but taxes change people's behavior.
With payroll tax, which is a tax that is paid by everyone who works, goes to medicaid, medicare, and social security. This is the tax that "screws" everyone.
There is clearly inefficiency with how we collect taxes. We ultimately want to tax things where behavior will not change very much for buyers; since demanders are insensitive to price change they often bear the cost of the tax.
So we wonder... why doesn't the real incidence matter? And what DOES matter?
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