Tax Incidence in Illinois

Remember, ec 10 students, when we studied tax incidence last fall? One lesson was that it does not matter which side of a market the government taxes. Regardless of whether a tax is levied on suppliers or demanders in a market, the final incidence is divided between the two groups of market participants depending on the elasticities of supply and demand.

That lesson is apparently lost on some elected leaders in Illinois. Here is the latest news from that state:

On Thursday, March 22, 2007, Illinois Governor Rod Blagojevich released a draft of bill language designed to implement the 3% health care payroll tax first announced on March 7, 2007....The proposed legislation indicates that the tax is intended to fall on the employer rather than its employees, providing that the payroll tax "shall not be withheld from wages paid to employees or otherwise be collected from employees or reduce the compensation paid to employees."

Life is a constant reminder that we teachers of basic economics need to try harder.