ABSTRACT
Albert Einstein reportedly once said: “The hardest thing in the world to understand is income taxes.” It is true that taxes can be complicated. The United States federal tax code is more than 70,000 pages long. Taxation provides a means to redistribute economic resources toward those with low income or special needs. Taxation is as much a political issue as an economic issue. Political leaders have used tax policy to promote their agendas by initiating various tax reforms: decreasing or increasing tax rates, changing the definition of taxable income, creating new taxes on specific products, and so forth. Any tax creates a disincentive, so consumers will reduce their purchases and seek alternatives. It is no surprise that excise taxes tend to be imposed on products with inelastic demand curves, such as gasoline, cigarettes, and alcohol. This suggests that the primary motivation for taxes on these products is revenue generation rather than encouraging behavioral changes.
