The difference between systems is the percent of income taken in tax as income rises. No resources wasted on tax shelters and tax avoidance. Easy system to understand, to comply with, and to collect taxes. Only people pay taxes. Quantity sold decreases, price rises, but supplier receives the price less the tax.
Government gains at the expense of consumer and producer surplus.
This is the deadweight loss due to the tax. Reagan reduced tax rates in the 1980 s for all taxpayers. Lost use of resources diverted from the private sector to government 2. Lost use of resources used to collect taxes and enforce rules 3. Politicians support legislation that benefits special-interest groups at the expense of disorganized taxpayers and consumers.