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December 26, 2007

Visible and invisible taxes

There are many ways to describe taxes - what is taxed, what the rate is, and who pays the tax - but there's another way. Some taxes are visible, and some are invisible. Here's a look at visible and invisible taxes. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Let me give you an example using toll roads. I think most people know, toll roads are probably in North Carolina's future. Tolls can be paid visibly, when you drive up to a tollbooth and throw your money in or your bills in, then you go on your way. Or, on many new toll roads, tolls are being paid invisibly. That is, there is an electronic system where you don't even have to stop at a booth or anything. You just whiz by and there is some electronic indicator that maybe picks up a number on your car or license plate, and later on, you are assessed a fee. Now, a new study shows that when the toll is directly paid - when you stop at the tollbooth and throw your coins in the bin or you pay the person - drivers are more resistant to increases in the toll. However, in contrast, the same study found that when the toll is electronically assessed, people don't see the toll - they do get a bill, but they don't see it when it's assessed - drivers are tolerant of bigger increases in the rate. So what you don't see - out of mind, out of sight, you don't think about it - the same applies here with taxes. If you don't see yourself being taxed, you don't know, perhaps, you're being taxed, you're less resistant to a higher tax rates. So how a tax is paid can be an important factor in the ultimate size of the tax.

Posted by Dave at December 26, 2007 08:00 AM