Taxes are in the news. We all just finished our returns for 2016; Donald Trump again claims that he cannot disclose his returns because he is being audited; and rumor has it that a distinguished University of Minnesota economics prof has been submitting fraudulent income tax returns for decades.

Moreover, the Minnesota Legislature still has not finalized its tax and spending bills, while president Trump and Republican congressional leaders, including Paul Ryan, continue to promise tax “reform” yet this year. Since tax issues are myriad, it is a good time to review some of the basic economics of taxation. Related Articles Real World Economics: Sometimes comparisons are not futile

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Start with tax “incidence.” This is the question of whose income is actually reduced by a tax. It may not be the person writing the check.

This is clear to most people. We know we pay sales tax because we wee it on sales slips. People also believe that though we don’t see the gas tax, we still pay it. Mention raising it and you won’t hear anyone say ”well, that’s fine, consumers don’t pay that anyway.”

But not all consumption taxes on items ultimately used by households are viewed the same. There is no outcry among the general public against a tax on medical devices. Manufacturers of such devices and their employees see it as an issue, but it is not like, say, the liquor tax in terms of public opinion. Raising the tax on beer would cause more outcry than doing so for heart valves. Our health care system is so opaque that no one getting a pacemaker or buying health insurance sees themselves as affected by this tax.

Sometimes public perceptions are mixed. Some people do believe that employers really pay half of total FICA taxes on wage and salary income and that their compensation would be exactly the same if the tax rates were changed. Others think that all FICA ostensibly paid by employers actually comes out of wages and that the employer portion rubric is a charade.

Actually, neither side is true. Regardless of the nominal arrangement, the total tax is split between employee and employer, with employees paying the lion’s share. But the exact split depends on many factors.

A second important concept is that of a tax’s “burden” and “excess burden.”

The burden of a tax is its total cost, not only in tax paid but in the cost of government administering the tax and of payers keeping records, filling out forms and so forth. Moreover, it includes costs of avoiding the tax, such as business owners hiring attorneys and accountants to set up business and estate plans to minimize income taxes on capital gains and estate taxes.

Finally, the burden includes economic losses due to inefficient uses of resources motivated by the tax. Take a farmland owner like me. I don’t necessarily make investments to improve the land that a younger owner might. But my renters will not make those investments because they are not sure they will have the land long enough to be paid back. The land would be managed more efficiently if I sold it to the operators. But if I sell, I will owe income taxes on the capital gain. However, if I hold it to my death, the cost “basis” of the property “steps up” to its market value the day I die. That very real income will never be subject to income taxes at all. So I don’t sell, even though the land would be managed more efficiently if I did.

Many people hung on to IBM and Control Data stock for the same reason. The two companies were failing, but people who had bought in cheap decades earlier did not move their capital elsewhere. If more owners had bailed, a falling stock price would have sent a stronger signal to management that it needed to change. But many were locked in by a myopic response to the incentives of step-up basis. This happens often and is a source of inefficient use of capital. Coincidentally, about a third of all capital gains income in our country is never subject to federal income taxation. Nearly all that benefits the top 10 percent of wealth owners.

So the burden of a tax contains several components, of which the tax paid is only one. Subtract that amount from the overall burden and what is left is the tax’s “excess burden.” That is the total cost to the economy resulting from the tax, over and above the revenue that goes to government. A tax with a high excess burden funds government wastefully.

Other concepts often used but imperfectly understood are those of “regressive, proportional and progressive” taxes. These have two different senses. In the narrow sense, they refer to the tax “rate” versus the tax “base.”

The base is whatever is being taxed whether income, sales or gallons of gasoline. If the rate is high when the base is low, and drops as the base increases, a tax is regressive. If the rate stays the same when this base changes, the tax is proportional. If the rate drops as the base increases, it is progressive.

That is the strict definition. But generally, most people, including economists, use a second, looser definition. H does the proportion of income paid in the tax change as income changes. If the percentage of income paid for a tax decreases as income increases, it is regressive. If this income percentage stays the same, it is proportional. If it increases, the tax is progressive.

Thus, under the strict definition, Minnesota’s sales tax is proportional. The rate is the same regardless of whether you buy $10,000 in taxable items in a year or $200,000. Ditto for the gas tax, the per-gallon rate stays the same regardless of quantity bought or price paid. And ditto for FICA taxes that, combined, equal 15.3 percent of earned income up to the cap of $11x,xxx,

But in the more commonly-used sense, sales and gas taxes are regressive. Poorer households spend a higher proportion of their income on these taxes because their taxable purchases make up a higher percentage of total income. This is even truer in states that, unlike Minnesota, tax food and all clothing. FICA is also regressive, since the Social Security part of it cuts out at the cap and only applies to wage and salaries, but not investment income like interest, dividends, rents and business profits. It is a huge bite for people on minimum wage and negligible for an investment banker.

The individual income tax applies progressively higher rates as income increases and therefore is progressive. Since the estate tax only hits the richest one-half percent of all estates, it also is progressive. Almost all other taxes are slightly to highly regressive. Across all taxes, state as well as federal, the U.S. tax system is roughly proportional.

Now consider taxes in the news. Any Republican tax “reform” will try to eliminate the estate tax. It is progressive and it has a very high excess burden. And any “reform” will again leave the “step-up basis” provision intact. That is very regressive and also has a huge excess burden.

The proposed 20 percent “border adjustment tax” has unclear incidence. Trump and Ryan would have you believe that Chinese and Mexican exporters will pay. But at root, it is a tax on imports. These nearly always are ultimately paid by consumers through higher prices. It would be regressive, just like the sales tax.

Yes, economists also note that the tax would make the U.S. dollar more valuable compared to other currencies. That would offset some of the effects of the tax since a dollar would buy more imports. But the stronger dollar would hurt incomes of farmers and of owners and employees in any industry that exports or competes with imports. This is a huge and as-yet poorly understood can of worms.

The GOP majority in the state Legislature does not want to raise the gas tax but would allocate sales taxes on auto-related things like car rentals and repair parts to roads. Several readers queried me about how this would increase administative costs for anyone selling even a few air filters or turn signal bulbs. Yes, if retailers had to keep track of a whole new category of taxed goods, the increase in excess burden would be huge. But the bill only calls for making an estimate of what that would be and moving it from the general fund to the road fund. This exposes it for the gimmick it is, but there is no big increase in burden.

U.S, corporate and individual income taxes are the most complicated of any wealthy country. Minnesota’s real estate and sales tax systems are among the most complicated of any state. Complication always increases burden, not only in filling out forms, but, more importantly, in motivating resource use decisions that are wasteful. The federal complication stems from businesses and interest groups petitioning for special treatment. Here in Minnesota, it stems from a desire to make the tax system fairer. But these efforts have a cost.

St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.