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Just imagine what would happen if income taxes for employees were reduced to zero. If you think employees would have that much more money you don't think straig

Just imagine what would happen if income taxes for employees were reduced to zero. If you think employees would have that much more money you don't think straight. Employers don't pay workers as much as they can. They pay them as little as they can and that mostly doesn't change with the tax rate. That's all you need to know to understand the actual mechanics in presence of misleading labels. Nominally income tax (of employees) is just a tax on purchase of labor. Another angle you could use to understand this is that reduction of income tax (for bottom 90% of earners) promotes employment. Why is that? Beacuse it makes the labor cheaper.

deleted 7mo ago
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verteu 7mo ago
No, that's not what the evidence shows, eg: https://www.sciencedirect.com/science/article/abs/pii/S0047272701000809 https://www.sciencedirect.com/science/article/abs/pii/S00472... > Gruber is able to identify incidence on gross earnings as well as on employment by exploiting variation in payroll tax changes between firms. The benefit of the payroll tax cut is found to have been fully shifted to workers through higher earnings, with no significant employment effects. With similar objectives, Anderson and Meyer, 1997, Anderson and Meyer, 1998 use US firm-level micro data to measure the effects of changes in an experience rated Unemployment Insurance system. Payment variation between firms, due to the number of workers laid off subsequently claiming UI benefits, allows identification of the incidence of the tax on earnings. At the four-digit industry level, Anderson and Meyer find full shifting of the burden of higher payroll tax from employers to workers in the form of lower earnings. They report insignificant employment effects. We find strong evidence of partial shifting of the burden of income tax from worker to employer. Although income tax is incident on equilibrium wages, the tax burden is not fully shifted.
- scotty79 7mo ago
  From the same paper: "Higher marginal tax rates are associated with increases in gross wages and earnings." The part that you cited is where they cite the old papers by other authors. They also say why conclusions of those papers might have been wrong: "Moreover, we show that ignoring the potential labour supply response to a tax change, following the methodology of Gruber (1997) or Anderson and Meyer (1998), as well as ignoring the endogeneity of the marginal tax rate, may lead to the erroneous conclusion that the tax is fully incident on equilibrium earnings."
  - verteu 7mo ago
    Right, the tax is partially borne by employers (who raise gross wages), and partially by workers (who receive lower net wages). Debunking your claim: > While in practice employers know exactly for how little money (in hand) you are willing to work and in absence of income taxes would just pay this much less so that your money in hand is the same.

deleted 7mo ago

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verteu 7mo ago

No, that's not what the evidence shows, eg: https://www.sciencedirect.com/science/article/abs/pii/S0047272701000809 https://www.sciencedirect.com/science/article/abs/pii/S00472... > Gruber is able to identify incidence on gross earnings as well as on employment by exploiting variation in payroll tax changes between firms. The benefit of the payroll tax cut is found to have been fully shifted to workers through higher earnings, with no significant employment effects. With similar objectives, Anderson and Meyer, 1997, Anderson and Meyer, 1998 use US firm-level micro data to measure the effects of changes in an experience rated Unemployment Insurance system. Payment variation between firms, due to the number of workers laid off subsequently claiming UI benefits, allows identification of the incidence of the tax on earnings. At the four-digit industry level, Anderson and Meyer find full shifting of the burden of higher payroll tax from employers to workers in the form of lower earnings. They report insignificant employment effects. We find strong evidence of partial shifting of the burden of income tax from worker to employer. Although income tax is incident on equilibrium wages, the tax burden is not fully shifted.

scotty79 7mo ago
From the same paper: "Higher marginal tax rates are associated with increases in gross wages and earnings." The part that you cited is where they cite the old papers by other authors. They also say why conclusions of those papers might have been wrong: "Moreover, we show that ignoring the potential labour supply response to a tax change, following the methodology of Gruber (1997) or Anderson and Meyer (1998), as well as ignoring the endogeneity of the marginal tax rate, may lead to the erroneous conclusion that the tax is fully incident on equilibrium earnings."
- verteu 7mo ago
  Right, the tax is partially borne by employers (who raise gross wages), and partially by workers (who receive lower net wages). Debunking your claim: > While in practice employers know exactly for how little money (in hand) you are willing to work and in absence of income taxes would just pay this much less so that your money in hand is the same.