Tax impact is where the laws define who makes what payment to the government.

Instructions: There are two responses. Write a 100 word response for each.

Response 1) Tax impact is where the laws define who makes what payment to the government. This has an effect on a tax on the production or consumption of a product. When dealing with the tax analysis, the tax impact may not coincide with the economic incidence of the tax because the shifting has occurred.

Tax incidence involves taxes with impact on business like taxes on corporate net income or employee payroll. The tax incidence is where the market forces are determined. There are two important principles about tax incidence and that is, that laws may define tax impacts but market forces determine incidence and all taxes are ultimately borne by individuals.

When dealing with tax incidence, a business may respond in three different ways to a tax. The first way is forward shifting, which is where the business increases its prices to reflect the tax. The second way is backward shifting, which is where the business reduces the price it pays for resources it purchases like labor and suppliers. The third way is absorption, which is where the business may return a lower profit to the owners. Depending on which one of these way occur is based on the type of tax. This meaning whether the tax is levied on net profits, sales, or property or on the market conditions the firm faces. It can be expected to respond in whatever way it is left on the owners with the greatest profit after the tax.

Romans 13:7 says “Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.” When the taxes are done correctly, whether impact or incidence, it helps everyone in the end.

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Response 2) Cost-benefit analysis estimates whether the gain (benefit) to society from the project is greater than the social sacrifice (cost)is required to produce the project. It provides a way of organizing information about a program under consideration so that priorities may be reasonably established. Cost benefit analysis is the government analog to that process of private capitol budgeting. Governments use this as a tool for assistance when making decisions about certain things. Some of these things can be purchasing information technology systems and building new highways and bridges. Cost-benefit analysis is very similar to the private decision making process. It is very useful in more narrow public management decisions about alternative methods of accomplishing a particular task.

There are five steps that make up a formal cost-benefit analysis. The first step is categorizing project objectives, which is where the project analysis identifies the projects’ benefits. In order to establish a sound foundation for the analysis, the relationship between the project and the objective must be traceable. The second step is estimating the project’s impact on objectives, which is where the the decisions must be made from estimates and not from facts. The analysis must proceed with the best estimates and can’t lack complete information because that is only available when it is too late to decide. The third step is estimating project costs, which is the project’s resources that includes construction costs and the operating cost for the life of the project. The fourth step is discounting cost and benefit flows at the appropriate discount rate. There are two alternatives when considering discounting which are the cost of borrowed funds to the government and the opportunity cost of displaced private activity. The last and fifth step is summarizing findings for decision making, which identifies whether that project is economically justified or establish the rankings among the projects to be fitted into a limited budget.

 

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Tax impact is where the laws define who makes what payment to the government.

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