Tax Incidence

Apparently, someone does not understand Tax incidence – Wikipedia, the free encyclopedia.

Talking Points Memo | Oil Company Holiday?

This is a beautiful example for Econ 101. If GC is correct, then Hillary’s plan leads to no change from the current situation, unless the windfall tax will be higher than the increase in the oil company’s profits from the drop in the taxes at the pump.

Think of it this way. You pay $3 per gallon before the tax cut and $3 per gallon after the cut. After the tax cut, that entire $3 goes to the oil company instead of $3 less the tax paid at the pump (hence McCain’s plan is a windfall to the oil company). Hillary’s plan taxes away the ‘windfall profit,’ so that the oil companies get what they go before.

Who exactly is her plan helping?

Apparently, politics is about confusing people.

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