Actual vs. statutory incidence
Economic analysis 
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Economic analysis indicates that the actual burden of a tax- or more precisely, the split of the burden between buyers and sellers-does not depend on whether the tax is statutorily placed on the buyer or the seller. To see this, we must first look at how the market responds to a tax statutorily placed on the buyer. Continuing with the auto tax example, let’s suppose that the government places the $1,000tax on the buyer of the car, rather than the seller. After making a used-car purchase, the buyer must send a check to the government for $1,000. Imposing a tax on buyers will shift the demand curve downward by the amount of the tax. This is because the height of the demand curve represents the maximum price a buyer is willing to pay for the car. If a particular buyer is willing and able to pay only $5,000 for a car, the $1,000 tax would mean that the most the buyer would be willing to pay to the seller would be $4,000. This is because the total cost to the buyer is now the purchase price plus the tax.
The price of used cars falls from $7,000 (point A) to $6,400 (point B ) when the tax is statutorily placed on the buyer. Even though the tax is placed on buyers, the reduction in demand that results causes the price received by sellers to fall by $600. Thus, $600 of the tax is again borne by sellers, just as it was when the tax was placed statutorily on them. From the buyer’s standpoint, a car now costs $7,400 ($6,400 paid to the seller plus $1,000 in tax to the government). Just as when the tax was imposed on the seller, the buyer now pays $400 more for a used car.
The actual burden of the $1,000 tax is independent of its statutory incidence. In both cases, buyers pay a total price of $7,400 for the car (a $400 increase from the pretax level), and sellers receive $6,400 from the sale (a $600 decrease from the pretax level). Correspondingly, the revenue derived by the government, the number of sales eliminated by the tax, and the size of the deadweight loss are identical whether the law requires payment of the tax by the sellers or by the buyers. A similar phenomenon occurs with any tax. The 15.3 percent Social Security payroll tax, for example, is statutorily levied as 7.65 percent on the employee and 7.65 percent on the employer. The impact is to drive down the net pay received by employees and raise the employers’ cost of hiring workers. Economic analysis tells us that the actual burden of this tax will probably differ from its legal assignment, and that it will be the same regardless of how the tax is statutorily assigned. Because market prices (here, workers’ gross wage) will adjust, the incidence of the tax will be identical regardless of whether the 15.3 percent is levied on employees or on employers or is divided between the two parties.