What Is a Commodity Tax Example

In this video, we cover taxes and tax revenues and subsidies on goods. We discuss taxes on commodities, including who pays the tax and has lost profits from trade, also known as the windfall effect. We look at the tax wedge and apply what we learn to the example of Social Security taxes. Tyler Cowen (reference below, video on the right) identifies the three important ideas for taxing goods: So let`s start with the first point. Let`s begin our analysis of the taxation of goods by assuming that it is the suppliers who must send the cheque to the government. That is, the legal impact of the tax lies with the suppliers. What is the effect of a tax on suppliers? We can think of a tax on suppliers as an increase in their costs. This will move the supply curve up by the amount of the tax, so that the supply curve moves up. Let`s make a request.

In the United States, under the Federal Insurance Contributions Act (FICA) 12.4% of labor income must be paid to Social Security within an annual limit, and an additional 2.9% must be paid to Medicare. Half of this amount comes directly from the employee. You can see it on your own paychecks. This is the FICA tax, and half of the amount comes from the employer. The question is whether the fact that it is a 50/50 split makes a difference. Does this mean, for example, that since the employer pays half, it is necessarily a good deal for the employee? No, it doesn`t mean that. What we do know now is that we could charge 100% of that tax to the employee, or 100% of that tax to the employer. It would make no difference, neither for wages, nor for prices, nor for anything. This would change the legal impact of the tax, but it would not change the ultimate economic impact.

Shares are treated differently, and anything held for less than 12 months is considered a short-term capital gain and is taxed at the rate appropriate to your tax bracket. Long-term capital gains are capped at 15%, which is much more favorable for those with higher incomes. There are some deeper issues related to reporting commodity trade taxes, but the above information for commodity taxes should cover most people who don`t trade solely for their livelihood. The case illustrated in Figure 5 is an example where all supplier revenues are rents and can be taxed by the government according to the definition of rent without any impact on production. There is therefore no windfall effect or loss of efficiency. Another way to express this is that the economic impact of the tax, who actually pays the tax, does not depend on the legal impact of who is legally required to write the cheque to the government. This will become a little clearer over time. Don`t worry if it`s not clear yet. The second key point, which pays the tax, depends on the relative elasticities of supply and demand.

In fact, we can summarize point one and point two by saying that who pays the tax does not depend on the laws of Congress, but on the laws of supply and demand. The third point is that the taxation of goods increases revenues, but also takes away some profits from trade, that is, it creates windfall effects. We will look at the first point of this presentation, and then move on to point two and point three in future discussions. Follow lines 8 and 9 and calculate your capital gains. In this example, you multiply $5,000 by 40% = $2,000 on line 8 of Form 6781. On line 9, you multiply $5,000 by 60% = $3,000. Include these numbers on your Schedule D – Capital Gains and Losses form. Once the Schedule D spreadsheet is complete, transfer the numbers to your Form 1040 and you`re done. Today, we are starting the first of several discussions on taxes and subsidies. We are not going to talk about income taxes and income subsidies.

These are usually topics for macroeconomics. Instead, we will talk about taxes and subsidies on goods, such as a sales tax or a subsidy for wheat. These are also known as commodity taxes and subsidies. So let`s get started. The following summary of tax issues related to commodity trading, with an example of calculations for your own tax return, will shed light on the process. Figure 1 shows the situation of a typical product that could be taxed. A tax on a good can simply be seen as a mismatch between the price paid by the consumer and the price received from the manufacturer. This is illustrated in Figure 2. Now let`s see what happens when it is the buyers who have to send the cheque to the government. Now let`s look at the situation where the legal impact lies with the buyers.

As before, we start with tax-free balance. No taxes for sellers or buyers. This balance is also located at point A. I have also included this supply curve here. This is the supply curve when the tax is levied on suppliers. This is the supply curve of the previous problem. It is not relevant to this problem. I took it more to remind us where the balance of the previous problem was.

You can think of this as a kind of phantom supply curve. It is a supply curve of the previous problem that comes back to follow us. How does a fee affect applicants? Think of it this way. Let`s say most of what you were willing to pay for an apple is $1. Again, most are willing to stop paying for that apple, a dollar. Suppose you learn that the government has introduced a new tax. For every apple you buy, you now have to pay 25 cents to the government. Well, how much are you willing to pay suppliers for this apple? You are just willing to pay the maximum amount you are willing to pay to suppliers is now 75 cents. The maximum amount the apple was worth to you is one dollar. If you know you`re taxed 25 cents when you buy that apple, then the highest thing you`ll be willing to pay to the supplier is 75 cents, because 75 cents plus the 25 cents tax to the government is $1. This is the highest thing you are willing to pay to get the apple. In other words, what a tax on applicants does is reduce their willingness to pay, which means that the demand curve changes.

In which direction? The demand curve moves down depending on the amount of the tax. So let`s change. The tax is exactly the same amount as before. Let`s move the demand curve down based on the level of the tax. We now see that the new balance is at point B. First of all, note that the amount has decreased. The quantity exchange decreased by exactly the same amount as before in the previous problem. What about the price sellers receive? Sellers now receive this price. And behold, it`s exactly the same price as before.

What about the price paid by buyers? Buyers are now paying what they paid to suppliers, and they have to pay the tax to the government. This distance is the tax. And behold, the price after taxes paid by buyers is again exactly what it was when the tax was with suppliers. If the tax is with the buyers, the buyers pay more than before. Sellers receive less than before for exactly the same amounts. The amount also decreases by the same amount. The net price or total price paid by buyers is the same. The total price sellers receive is the same.

On line 1 of the form, enter your winnings and losses from your Form 1099-B. Get to the point in the form where you add the winnings and losses to get a final number. For example, this number can represent a profit of $5,000. Raw materials are launched on the market at the end of the year. This means that if you have open positions, these will be calculated as gains and losses as if they were closed positions with the price on the last day of the year. .