Inflation, Incidentally

Taxation is something like a game of hot potatoes, where those who are taxed try to pass on their burden to someone else before times runs out and the bill comes due.  Unlike a hot potato, however, a tax burden can usually only be passed along in chunks because most people aren't willing to take the whole thing from someone else. In economics, how this steaming tax potato gets divided is called tax incidence. To use an example, a retailer might respond to a higher sales tax by increasing her prices, thereby passing on the tax burden to her customers. Wary of losing business, however, she likely won't increase her prices enough to cover the full amount of the tax, and will end up shouldering some--if not most--of the burden herself.

Today as I was poring over the financials of a new fast food place in Kigali I'm consulting on, I noticed they had not only included an estimate of inflation, but also how much of the increase in inflation they planned on passing on to their customers. I'd never thought of "inflation incidence" before (and indeed, googling the term yields no relevant result), but given that inflation is just an implicit tax, it makes perfect sense.

The fast food place will, incidentally, serve its hot potatoes sliced and fried.

Texas Tea, or German Glühwein?

I knew gas taxes in Germany were high, but not this high.

Out of whack exchange rates are partially responsible for the high numbers of course, but one thing worth keeping in mind is that even at the comparatively low American level of taxation, federal and state governments collect more tax revenue from gasoline than oil companies collect in profits. In fact, taxes have outpaced profits in the oil industry since 1977 according to The Tax Foundation.

Think about that the next time you hear a politician talk without irony about the greed of oil companies.

Should Five Per Cent Appear Too Small

I was surprised to discover some weeks ago that Germans pay out the most in taxes among rich countries in the OECD (at least in terms of income tax and social security payments):

Perhaps my surprise was unwarranted, however, since my own pay stubs provide all the evidence I need. Currently I pay about 22 percent of my monthly earnings in taxes, a tremendously high rate considering how little I earn. What’s more, about half of my taxes (≈10 percent of my income) goes toward social security. I tend to disagree with a government forcing me to save at all, but I find it especially laughable when I’m forced to pay for benefits I will never receive (I’m not planning on retiring in Germany, after all).

To be fair, I can make a claim for a refund when I return to the US, but even that is the equivalent of providing the German government with an interest free loan. One wonders how this practice could be considered anything but unethical in view of the fact that I am coerced—ultimately upon threat of violence—to contribute. Alas, that is simply the nature of the beast.

More worrisome for me at the moment, though, is that my taxes went mysteriously up by about 1.5 percent between February and March. Something pernicious is undoubtedly afoot…