Question
In: Economics
Prior to 2011, the Social Security payroll tax was 6.2% taken from workers pay and 6.2% paid by employers (total 12.4%).
Prior to 2011, the Social Security payroll tax was 6.2% taken from workers pay and 6.2% paid by employers (total 12.4%). The Tax Relief Act (2010) reduced the workers portion from 6.2% to 4.2% in 2011, but left the employers portion at 6.2%.
a) Should this change have increased the typical workers take-home pay by exactly 2%, more than 2%, or less than 2%? Do any elasticities affect your answer? Explain.
b) Who gets the bigger share of this tax cut, workers or employers? How do elasticities determine the answer?
Solutions
Expert Solution
a) As long as both the supply of labor and the demand of labor have price elasticity greater than zero, the cut in taxation will be shared by employers and workers, which means that take- home pay of workers’ will increase less than 2%. The answer would not be depending on whether demand of labor is less or more elastic than labor supply
b) When demand for labor is more elastic than supply of labor, then
the workers get larger share of the tax cut compared to the
employers
When demand for labor is less elastic than supply of labor, then
the employers get more of the tax cut compared to the
workers
Rahul Sunny answered 2 years agoRelated Solutions
Reducing payroll tax benefits workers and employers equally.
True or False? Draw a graph (such as supply and demand diagrams) to support your answer:
Reducing payroll tax benefits workers and employers equally.
Social Security system is a pay as you go retirement plan. Money taken from workers checks...
Social Security system is a pay as you go retirement
plan. Money taken from workers checks is
transferred to retirees. At one time there were 42 workers per
retiree; today the ratio is now under 3 to 1.
By 2030, the ratio is expected to fall to 2 to 1. The only way to
keep the current system solvent is to raise
taxes on those currently working or cut benefits to those already
retired. Neither of these options is
particularly...
The Social Security Administration increased the taxable wage base from $107,200 to $109,100. The 6.2% tax...
The Social Security Administration increased the taxable wage
base from $107,200 to $109,100. The 6.2% tax rate is unchanged. Joe
Burns earned over $120,000 each of the past two years. a. What is
the percent increase in the base? (Round your answer to the nearest
hundredth percent.) Percent increase % b. What is Joe’s increase in
Social Security tax for the new year? (Round your answer to the
nearest cent.) Increase in social security tax $
social Security tax is 12.4%. assume you earn 100,000$ a year if instead of paying taxes...
social Security tax is 12.4%. assume you earn 100,000$ a year if
instead of paying taxes you could invest in private Social
Security.how much would you be in your account after 40 years I
don't I don't 8% rate of return?
Paloma Co. has four employees. FICA Social Security taxes are 6.2% of the first $128,400 paid...
Paloma Co. has four employees. FICA Social Security taxes are
6.2% of the first $128,400 paid to each employee, and FICA Medicare
taxes are 1.45% of gross pay. Also, for the first $7,000 paid to
each employee, the company’s FUTA taxes are 0.6% and SUTA taxes are
5.4%. The company is preparing its payroll calculations for the
week ended August 25. Payroll records show the following
information for the company’s four employees. Current Week Name
Gross Pay through Aug. 18...
BMX Company has one employee FICA Social Security taxes are 6.2% of the first $128,400 paid...
BMX Company has one employee FICA Social Security taxes are 6.2%
of the first $128,400 paid to its employee,and FICA Medicare taxes
are 1.45% of gross pay.For BMC,its FUTA taxes are 0.6% and SUTA
taxes are 5.4-% of the first $7,000 paid to its employee
BMX Company has one employee FICA Social Security taxes are 6.2%
of the first $128,400 paid to its employee,and FICA Medicare taxes
are 1.45% of gross pay.For BMC,its FUTA taxes are 0.6% and SUTA
taxes...
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $118,500 paid...
BMX Company has one employee. FICA Social Security taxes are
6.2% of the first $118,500 paid to its employee, and FICA Medicare
taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and
SUTA taxes are 2.9% of the first $7,000 paid to its employee.
Gross Pay through August
Gross Pay for September
a.
$
5,300
$
2,600
b.
19,000
2,900
c.
113,000
8,800
Compute BMX’s amounts for each of these four taxes as applied to
the...
Paloma Co. has four employees. FICA Social Security taxes are 6.2% of the first $118,500 paid...
Paloma Co. has four employees. FICA Social Security taxes are
6.2% of the first $118,500 paid to each employee, and FICA Medicare
taxes are 1.45% of gross pay. Also, for the first $7,000 paid to
each employee, the company’s FUTA taxes are 0.6% and SUTA taxes are
2.15%. The company is preparing its payroll calculations for the
week ended August 25. Payroll records show the following
information for the company’s four employees. Current Week Name
Gross Pay through Aug. 18...
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $118,500 paid...
BMX Company has one employee. FICA Social Security taxes are
6.2% of the first $118,500 paid to its employee, and FICA Medicare
taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and
SUTA taxes are 2.9% of the first $7,000 paid to its employee.
Gross Pay through August
Gross Pay for September
a.
$
6,600
$
500
b.
18,400
2,300
c.
112,400
8,200
Exercise 9-5 Computing payroll taxes LO P2, P3
Compute BMX’s amounts for each...
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $128,400 paid...
BMX Company has one employee. FICA Social Security taxes are
6.2% of the first $128,400 paid to its employee, and FICA Medicare
taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and
SUTA taxes are 5.4% of the first $7,000 paid to its employee.
Gross Pay through August 31 Gross Payfor September
A. $ 5,9 00 a. $ 1,400
B. 3,400 b. 3,500
C.123,500 c. 9,400
Taxes to be Withheld From Gross Pay
(Employee-Paid Taxes)
September...
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