People with lower incomes generally devote a larger share of their incomes to consumption of goods covered by sales taxes than people with higher incomes Sales taxes are thus likely to be regressive Excise Taxes An excise tax is imposed on specific items In some cases, excise taxes are justified as a way of discouraging the consumption of demerit goods, such as cigarettes and alcoholic beverages In other cases, an excise tax is a kind of benefits-received tax Excise taxes on gasoline, for example, are typically earmarked for use in building and maintaining highways, so that those who pay the tax are the ones who benefit from the service provided The most important excise tax in the United States is the payroll tax imposed on workers’ earnings In 2007, the payroll tax was 12.4% and was levied on incomes up to $97,500 The Medicare portion of the payroll tax, 2.9%, was levied on all earned wages without limit Half of the payroll tax is charged to employers, half to employees The proceeds of this excise on payrolls finance Social Security and Medicare benefits Almost two-thirds of U S households pay more in payroll taxes than in any other taxes Tax Incidence Analysis Next time you purchase an item at a store, notice the sales tax imposed by your state, county, and city The clerk rings up the total, then adds up the tax The store is the entity that “pays” the sales tax, in the sense that it sends the money to the government agencies that imposed it, but you are the one who actually foots the bill—or are you? Is it possible that the sales tax affects the price of the item itself? Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 813