I agree it is different. You are saying "it would bid wages up". Is there an example where this happened? Corporate profits are high now and they are hoarding trillions in cash. Why would THIS sudden influx of added cash cause a floodgate of payments to workers?
So if there was another example that universally reduced outlays for all corporations, it would lead to higher wages for all? Are you saying the the proposed reduction in the corporate tax rate to 15% being proposed is the real way to achieve the $15 minimum wage? How is this idea different than the concept of trickle down?
Thank you for your dialog.
The thing is there is no incentive for a company to pay employees 7.5% more if their expenses get cut by 7.5% and you can see this in all sorts of comparable examples.
When companies now suddenly make more money, do they convert this to additional pay? No, overwhelmingly they don't.
Maybe the precedent would be different with this but I highly doubt it.
I can't wait for ender's Principles of Economics textbook to come out.
Ender's Principles of Economics agrees with the Principles of Economics that I took in college. Taxes are not completely transferred, but some are actually paid by the business owners themselves. I see no reason why this would not be the case in reverse as well. Some tax cuts may be transferred to price cuts or increased wages, but the business will keep as much for themselves as they can get away with. Since this tax goes directly to helping the workers in retirement, this would be a net loss to workers overall.
Payroll taxes are paid nearly all by employees. The supply of labor is much more inelastic than the demand for labor.
From Modern Principles: Macroeconomics (3rd edition) by Tyler Cowen and Alex Tabarrok:
Many Americans believe "I pay half of this tax, my employer pays the other half," but this isn't quite right. As we've already mentioned, the person who appears to pay a tax isn't always the person who actualy pays. In reality, economic research shows that the employer's payment is mostly taken out of the worker's prospective wage; in other words, if your employer didn't have to pay the FICA taxes, your wages would be higher.* Much of the burden of the FICA tax falls on workers, not on employees.
The * is referring to Gruber, Jonathan. "The Incidence of Payroll Taxation: Evidence from Chile." Journal of Labor Economics 15 (1997): S72 - S101.
From this journal article:
This policy led to a sharp exogenous reduction in the payroll tax burden on Chilean firms; on average, payroll taxes fell by 25% over 6 years. Using data from a census of manufacturing firms, I estimate that the incidence of payroll taxes is fully on wages, with no effect on employment.
and
The reduced costs of payroll taxation to firms appear to have been fully passed on to workers in the form of higher wages, with little effect on employment levels.
Thank you for the book reference. It sounds like a very interesting read.
I agree with you that payroll taxes are nearly all paid by the employer. I do not doubt that wages MIGHT increase and in fact most likely would. My issue is with your comment it would bid wages up to the SAME level as the drop in benefit. I see these as two different issues, and possibly mutually exclusive.
Your first quote helps to prove MY point, not yours. "Much of the burden", "mostly taken" imply not all.
Probably the most similar benefit reduction to what we are talking about would be reduction in the number of companies that offer pensions in the US. 48% of all the private wage and salary workforce were in retirement plans in 1970, triple the amount from 1950 (
https://www.ssa.gov/policy/docs/ssb/v35n4/v35n4p10.pdf). Since, they were proven unaffordable and reduced or eliminated and now cover about 18% of the private workforce.
One can certainly argue that eliminating pension programs was the necessary thing to to in order to ensure a company profitability (or even its survival). Very few can claim 100% of those outlays were translated directly to an equivalent wage increase. Wages most likely increased some, but if they increased to the same level, the company would be equally unprofitable. To make matters even more confusing, it is also possible that it can cost the company more and the benefit is actually less to go from a pension system to a 401k type retirement plan. It looks like we would both be right (and wrong) in that case.