{"id":38165,"date":"2015-07-17T14:51:33","date_gmt":"2015-07-17T09:21:33","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=38165"},"modified":"2024-04-03T13:19:12","modified_gmt":"2024-04-03T07:49:12","slug":"who-actually-pays-the-luxury-tax","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/who-actually-pays-the-luxury-tax\/","title":{"rendered":"Who Actually Pays the Luxury Tax ?"},"content":{"rendered":"

\"Who<\/a><\/p>\n

A new luxury tax was adopted by Congress in 1990 on items such as private airplanes, yachts, furs, expensive cars and jewellery. This tax was imposed so as to raise revenue from those who could most easily afford to pay. Because only the rich could afford to buy such extravagances, taxing the luxuries seemed a logical way of taxing the rich.<\/p>\n

This is a good way of taxing the rich, right ? Even you might be thinking that and well done congress, you did a good work! \u00a0Every \u00a0layman or people without the knowledge of economics would also think that way. But what’s actually shocking is..this isn’t true. How ? Why ? You will find your answer soon.<\/p>\n

Just scroll down and read the entire article. \ud83d\ude42<\/p>\n

Yet when the forces of supply and demand \u00a0took over, the outcome was quite different \u00a0from what was intended \u00a0by this new tax policy.<\/p>\n

Consider for example, the market for yachts. Their demand is quite elastic. A millionaire can easily not buy a yacht and can use the same money to buy the other extravagances. By contrast, supply of yachts is relatively \u00a0inelastic, atleast in short run. The yacht factory cannot \u00a0easily shut down or can be convert \u00a0to other alternative \u00a0uses and workers who provide their labour \u00a0for building yachts will not be eager to change \u00a0their careers in response to changing \u00a0market conditions.<\/p>\n

The burden of this tax would fall largely on the suppliers due to inelastic supply \u00a0and elastic demand. That is , this tax on yachts places a larger burden on the firms and workers who build \u00a0the yachts because \u00a0they end up getting a lower price for their product. However, the workers are not wealthy. \u00a0Thus the burden of the tax falls largely on the middle class than on the rich.<\/p>\n

Why does this happen ?<\/strong><\/p>\n

You might be wondering what elasticity has to do with the tax burden.<\/p>\n

The answer \u00a0lies here<\/p>\n

When a good is taxed ,buyers \u00a0and sellers of the good share the burden of the tax. But how exactly is this burden divided? Only rarely will it be shared equally. The incidence of the tax falls more heavily on the side of the market which is less elastic. \u00a0This is because, elasticity measures the willingness of the buyers or sellers to leave \u00a0the market when conditions become unfavourable. A small elasticity of demand means that buyers do not have good alternatives to consuming \u00a0a particular product whereas a small elasticity of supply means that suppliers don’t have good alternatives to producing \u00a0that product . Thus when a good is taxed,the side of the market which is less willing to leave the market because it has fewer alternatives has to bear more of the burden of the tax.<\/p>\n

Thus unknowingly this luxury tax imposed was repealed in 1993 by Congress when the actual effects of the tax became apparent to them.<\/p>\n

Hope you have got your answer now! \ud83d\ude1b<\/p>\n

Click here for government certifications<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A new luxury tax was adopted by Congress in 1990 on items such as private airplanes, yachts, furs, expensive cars and jewellery. This tax was imposed so as to raise revenue from those who could most easily afford to pay. Because only the rich could afford to buy such extravagances, taxing the luxuries seemed a…<\/p>\n","protected":false},"author":1341,"featured_media":38252,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[4227],"tags":[2415,2042,5269,5268,2600,2041],"class_list":["post-38165","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","tag-congress","tag-demand","tag-elasticity","tag-luxury-tax","tag-market","tag-supply"],"acf":[],"yoast_head":"\nWho Actually Pays the Luxury Tax ? - Vskills Blog<\/title>\n<meta name=\"description\" content=\"Who actually pays the luxury tax ? Apply for a vskills certification now. 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