92. The Justice of a Tax May Depend on Its Shifting and Incidence

A proper understanding of the terms shifting and incidence is necessary before their discussion can profitably be undertaken. Fiscal authorities may place a tax upon a particular individual, which he will pay. He may, however, in some way, transfer the burden of this tax to a second individual; the second may transfer it to a third, and so on. The burden must, however, finally rest somewhere - that is, a point will be reached where there will be opportunity or possibility for no more transfers. This process of transferring a tax burden from one individual to another is called shifting) the point where the burden finally rests is called the inci-dence. The expressions have the same meaning as when applied by physicists to rays of light. A ray of light may be shifted or refracted in various directions by mirrors or prisms, but it will finally rest or hit upon some point, and this point is its incidence. The incidence of a tax is usually considered as the result of its having been shifted. If, however, a tax burden remained where it was first placed, the incidence properly might be said to be here, even though no process of shifting occurred.

The shifting of a tax must be clearly distinguished from the evasion of a tax. When an individual evades a tax he neither pays it and bears the burden, nor does anyone else. If all taxes were evaded no revenue would accrue to the state, while if all were shifted the revenue would not be affected, yet the person making the payment would not feel the burden. When the holder of a mortgage, for example, does not list it with the tax assessor, he evades the tax. If, however, he lists the mortgage as a part of his property, pays the tax levied upon it, and then charges the mortgagor a sufficiently high rate of interest to recoup himself for the tax, it is shifted, and the incidence is on the mortgagor.

Justice in taxation has long been an important fiscal problem, and from the time authorities began to give it their attention the question of shifting and incidence has received careful consideration. Some of the early theories of taxes find their justification in the ideas which were held concerning this particular phase. The ideas were sometimes unsound, and the tax systems were modified as experience showed the fallacies around which they were built. Some attention has been given to the shifting and incidence of revenues from the beginning of fiscal operations, yet it is only recently that any scientific study has been made as to causes, results, and methods. It is at present one of the most important questions - if, indeed, not the most important - to be considered in determining the justice of taxes. It is only when knowledge is had of the real bearer of a tax burden, that correct judgment can be passed as to the real justice of that tax.

To know merely that a tax has been shifted is often insufficient knowledge to a reader or an investigator. It is not known how far the incidence is removed from the levy of the tax, whether the tax has been shifted once, twice, or a half dozen times. Neither is it known whether the shifting has been backward toward the producer, or forward toward the consumer, yet a tax might be shifted in either direction, depending on circumstances which will be discussed later. Where there has been more than one stage in the shifting process, a student often wants to notice the consequences of the tax, or the mode of shifting at one or more of these stages. The expressions, original incidence, or first incidence, second incidence, and so on, are sometimes used to denote the different stages in the shifting process. When used without a qualifying word, however, incidence refers to the final resting place of a tax.

A fiscal system which attempted to levy taxes only upon the individuals most able to bear tax burdens, might be very unjust in its operation because of the shifting of these burdens. The attempt should be made to levy taxes so that the incidence will occur where there is the greatest ability to bear the burden. Such an ideal, of course, would be difficult to attain, but it can be more nearly attained if fiscal authorities understand and apply the principles that govern the shifting and incidence of taxes.