I need to quibble with the “compulsory retirement savings” point. Realistically, any amount that the government forces the employer to contribute as a condition to hire you is money that would have otherwise been given to you as wages. There is no way to increase someone’s value by fiat, so it’s misleading to suggest that you somehow gain from the tax (apart from the social value of the retirement scheme). Also, the US SS withholding is 12.4% of income, as half of it is paid by the employer before the employee sees the funds but, as discussed, both halves are really paid by employees through lower wages (7.65% (x2) would include Medicare taxes, which I don’t think you should include without including all of Australia’s other taxes that contribute to their Medicare, like GST and tariffs).
This is untrue as a general rule, though it can be closer or farther from the truth depending on market conditions.
To see why, imagine that every month you buy a supply of fizzlesprots from Acme Corp. Today is the first of February, so you eagerly rush off to buy your monthly fix. But wait! The government has just imposed a tax on all fizzlesprot purchases. Curses! Now you’ll have to pay even more, because Acme Corp will just pass the whole tax on to you.
Now change “fizzlesprot” to “labor” and “Acme Corp” to “employee”. Huh? You’re an employer, not an employee? My world is turned upside down! Could it be that the narrative where You bear the full brunt of every tax and They end up paying nothing is wrong?
In fact, whenever an economic transaction is taxed, the buyers and the sellers split the tax based on who is more eager to buy or sell. Labor is no different. It’s possible that, empirically, the employee usually pays more of a labor tax than the employer, but this is by no means guaranteed and I would personally expect the proportion to vary significantly between labor market segments.
(Wikipedia’s article on tax incidence claims that employees pay almost all of payroll taxes, but cites a single paper that claims a 70% labor / 30% owner split for corporate income tax burden in the US, and I have no idea how or whether that translates to payroll tax burden or whether the paper’s conclusions are generally accepted.)
For more details, consult your nearest introductory economics textbook.
Sorry this is so late, but I honestly completely forgot about this after I wrote it, so I never came back to see what transpired.
Anyway, I’m aware of how the marginal propensity to consume affects tax incidence, but in this case, where payroll taxes apply to every employee at every business, the only choices involved are whether to work and whether to hire, and companies have far more leeway in that decision. You can avoid the fizzlesprot tax by consuming an untaxed equivalent or finding a different, fizzlesprotless sexual fetish. You can only avoid a payroll tax by being unemployed; in practice, I don’t think there is such a thing as one’s marginal job. By contrast, employers look at the tax as part of the cost of hiring an additional employee, and simply won’t hire the marginal worker if his or her cost is above the expected benefit. I can’t imagine a situation where any significant portion of a payroll tax (as opposed to the corporate income tax) falls on the employer, so I didn’t bring it up.
Hmm, and yet only two-thirds of the working age population chooses to work, and some of that is part-time, which reduces the amount of labor available to employers. Labor can also move between sectors, leaving some relatively starved of workers. People who accumulate enough savings can choose to retire early and have to be enticed back into the labor market with higher wages, if they can be enticed at all. That doesn’t look like a fixed supply of working hours that must be sold at any price—the supply looks somewhat elastic.
Edit: Sorry about the tone in my original comment—tax incidence doesn’t seem to be common knowledge and I failed to consider that you might be aware of it already.
(Wikipedia’s article on tax incidence claims that employees pay almost all of payroll taxes, but cites a single paper that claims a 70% labor / 30% owner split for corporate income tax burden in the US, and I have no idea how or whether that translates to payroll tax burden or whether the paper’s conclusions are generally accepted.)
There’s no consensus on the incidence of the corporate income tax in the fully general case. It’s split among too many parties.
I need to quibble with the “compulsory retirement savings” point. Realistically, any amount that the government forces the employer to contribute as a condition to hire you is money that would have otherwise been given to you as wages. There is no way to increase someone’s value by fiat, so it’s misleading to suggest that you somehow gain from the tax (apart from the social value of the retirement scheme). Also, the US SS withholding is 12.4% of income, as half of it is paid by the employer before the employee sees the funds but, as discussed, both halves are really paid by employees through lower wages (7.65% (x2) would include Medicare taxes, which I don’t think you should include without including all of Australia’s other taxes that contribute to their Medicare, like GST and tariffs).
This is untrue as a general rule, though it can be closer or farther from the truth depending on market conditions.
To see why, imagine that every month you buy a supply of fizzlesprots from Acme Corp. Today is the first of February, so you eagerly rush off to buy your monthly fix. But wait! The government has just imposed a tax on all fizzlesprot purchases. Curses! Now you’ll have to pay even more, because Acme Corp will just pass the whole tax on to you.
Now change “fizzlesprot” to “labor” and “Acme Corp” to “employee”. Huh? You’re an employer, not an employee? My world is turned upside down! Could it be that the narrative where You bear the full brunt of every tax and They end up paying nothing is wrong?
In fact, whenever an economic transaction is taxed, the buyers and the sellers split the tax based on who is more eager to buy or sell. Labor is no different. It’s possible that, empirically, the employee usually pays more of a labor tax than the employer, but this is by no means guaranteed and I would personally expect the proportion to vary significantly between labor market segments.
(Wikipedia’s article on tax incidence claims that employees pay almost all of payroll taxes, but cites a single paper that claims a 70% labor / 30% owner split for corporate income tax burden in the US, and I have no idea how or whether that translates to payroll tax burden or whether the paper’s conclusions are generally accepted.)
For more details, consult your nearest introductory economics textbook.
Sorry this is so late, but I honestly completely forgot about this after I wrote it, so I never came back to see what transpired.
Anyway, I’m aware of how the marginal propensity to consume affects tax incidence, but in this case, where payroll taxes apply to every employee at every business, the only choices involved are whether to work and whether to hire, and companies have far more leeway in that decision. You can avoid the fizzlesprot tax by consuming an untaxed equivalent or finding a different, fizzlesprotless sexual fetish. You can only avoid a payroll tax by being unemployed; in practice, I don’t think there is such a thing as one’s marginal job. By contrast, employers look at the tax as part of the cost of hiring an additional employee, and simply won’t hire the marginal worker if his or her cost is above the expected benefit. I can’t imagine a situation where any significant portion of a payroll tax (as opposed to the corporate income tax) falls on the employer, so I didn’t bring it up.
Hmm, and yet only two-thirds of the working age population chooses to work, and some of that is part-time, which reduces the amount of labor available to employers. Labor can also move between sectors, leaving some relatively starved of workers. People who accumulate enough savings can choose to retire early and have to be enticed back into the labor market with higher wages, if they can be enticed at all. That doesn’t look like a fixed supply of working hours that must be sold at any price—the supply looks somewhat elastic.
Edit: Sorry about the tone in my original comment—tax incidence doesn’t seem to be common knowledge and I failed to consider that you might be aware of it already.
There’s no consensus on the incidence of the corporate income tax in the fully general case. It’s split among too many parties.