Imputed income is wealth created or acquired internally, or from non-cash sources. An example of imputed income is a farmer who builds a table instead of buying one. The market value of the table—minus any cost from wood and nails—is the farmer’s imputed income, or the net increase in wealth he now has from construction of the table. The farmer might ordinarily purchase his table from the neighboring carpenter, but be dissuaded from doing so because of a sales or income tax which increases the sales price and makes building the table—instead of buying it—more attractive.

The government, in the above example, may still want tax revenue for the net income, even if the farmer builds the table himself. But imputed income is difficult to identify and very difficult to tax. Hence, the farmer—and any person or business with the requisite internal resources—could avoid or evade income or sales taxation associated with imputed income, and thus shift liability for the cost of government to others who engage—or have to engage—in interpersonal or inter-business trade. Smaller businesses, which are highly adaptable but have fewer internal resources than larger businesses, may be disproportionately impacted from imputed income activity under an income or sales tax.

All taxes can impact trade and sales prices, but sales and income taxes are perpetual (continue to occur even when revenue requirements have been met) and can, especially at higher tax rates, discourage trade and economic efficiency usually associated with the division of labor.

See also

• Implied level of government service
• Rational economic exchange
• Real property use tax
• Taxation in the United States

References

• . p.70-72, 99, 102, 116-117, 119, 145.