Question

Evaluate the following claim:

\Two local politicans are campaigning for oce. One politician advocates a payroll tax of $s=hr payable by rms, the other politician advocates a payroll tax of $s=hr to be deducted from the paychecks of workers. As a result, one would expect workers to favor the former and

rm owners to favor the latter politician."

Answer 1

The proposals of the politicians can be dissected as follows:

The first politician is proposing to bring payroll tax to be paid by the firms. It will increase the cost of production and operation. It will either result into the lower wages and less number of workers demanded by the firms. Hence it will create more unemployment and or downward pressure upon the wages in the economy. It is not good for the workers, so they should not favor this proposal, because whatever is taxed, will be offset through them and consumers.

The second politician advocates the payroll tax deducted from the pay checks of the workers. It will reduce the disposable income and they will consume less and demand less. As a result, firms will decrease the output & firms will hire less people for jobs. It will create unemployment in the economy. So, it is not good for the firms as well.

Hence, both the proposals are not good either for the firms or workers.