a) distributional effects of payroll tax proposal look very different from distribut'l effects of SALT deduction. Payroll tax proposal would allow itemizers **& nonitemizers** to pay for state & local gov't services w/pre-fed-tax $$$, which --> a much less skewed distribution 5/
What about money that is provided to the government by an employer, but only in direct proportion to the employee's income?
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No, that’s not the individual’s income. There’s a debate to be had about how much flows through to them, as I’m sure you know.
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Is there a good economic reason to treat these as different? In particular, the debate about moving from an income tax to a payroll tax is precisely about recategorizing income as not-income under this definition, and you have a problem with that recategorization.
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Yes: the reason is that one has a definite and direct impact on the individual and the other doesn’t.
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I understand the theory, but the fact that the two are so fungible creates a problem for treating them as different from a policy perspective.
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They aren’t nearly as fungible as many economists assume they are. One of the problems with economics as a profession is this sort of assumption about employer taxes and wages. It just doesn’t work the way they think it will in the real world.
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One Democratic justification for the Cadillac Tax - that wages would rise when benefits get scaled back - is a good example of this misguided thinking that doesn’t have good evidence behind it.
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Yeah I don't disagree with this at all. Moving income taxes from employee to employer is fairly un-fungible in one sense: it requires a state tax law change! But on the other hand, if the tax effects are quite different, you would expect that kind of policy effect.
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A good example of this in the real world of today is how much people are willing to reorganize their income into S-corp ("pass thru") form to take advantage of favorable tax treatment (which is why Obama was in favor of normalizing C corp rates closer to individual rates ~28%)
End of conversation
New conversation -
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