TITLE

A NOTE ON CHANGES IN PAYROLL TAXES-DOES LEGAL INCIDENCE MATTER?

AUTHOR(S)

Holmlund, Bertil

PUB. DATE

December 1981

SOURCE

National Tax Journal;Dec81, Vol. 34 Issue 4, p479

SOURCE TYPE

Academic Journal

DOC. TYPE

Article

ABSTRACT

This article examines the legal and economic incidence of payroll taxes in the U.S. The exercises undertaken in this paper have identified some defects in conventional economic thinking about payroll tax incidence. The standard partial equilibrium analysis of taxes per se can give quite misleading results when applied to policies involving changes in existing taxes. In particular, it has been shown that wage and employment effects of payroll tax increases are non-neutral with respect to whom the legal incidence is placed on. Given the characteristics of the U.S. tax system, substantially larger employment reduction of increases in employee's tax rate is expected. Interestingly, however, this non-neutrality no longer holds when the incidence of incremental payroll tax changes is analyzed; the worker's net income loss per extra tax dollar is exactly the same for the two alternative policies. The results of the paper have some implications for empirical research on the effects of payroll tax increases. The widely adopted Phillips curve approach has appended the wage equation with alternative measures of changes in payroll taxes. Given the presence of multi collinearity between changes in different tax rates suitable restrictions should be desirable, and the equations derived in this note indicate ways of imposing such restrictions.

ACCESSION #

4585979

Tags: INCOME tax;  PAYROLL tax;  PAYROLL deductions;  WITHHOLDING tax

 

Related Articles

• Employment taxes update. Heaton, David; Fidler, Lesley // Accountancy;Aug2003, Vol. 132 Issue 1320, p99 

  The article reports on developments regarding employment tax in Great Britain. The Inland Revenue has declared that as part of the Working Together initiative, agents will be notified of Inland Revenue Employer Compliance visits. The Finance Act 2003 changes stock schemes legislation that the...

• Employment taxes update. Heaton, David; Fidler, Lesley // Accountancy;Aug2003, Vol. 132 Issue 1320, p99 

  The article reports on developments regarding employment tax in Great Britain. The Inland Revenue has declared that as part of the Working Together initiative, agents will be notified of Inland Revenue Employer Compliance visits. The Finance Act 2003 changes stock schemes legislation that the...

• Turn the Table on Taxes. Bennington, Robert // Enterprise/Salt Lake City;03/08/99, Vol. 28 Issue 37, p17 

  Offers advice on how to secure a W-2 when the company where employee used to work has already gone out of business. Attempt to contact the payroll office at the old employer; Use of last pay statement to figure the income received and withholding tax paid to prepare a substitute W-2; Securing a...

• Netherlands. Reid, Alan; Secular, Leslie // Accountancy;May83, Vol. 94 Issue 1077, p10 

  This section reports on the plan of the Dutch government to remove the withholding tax on Dutch investments by certain non-residents in the Netherlands, in May 1983.

• Employment taxes update. Heaton, David; Fidler, Lesley // Accountancy;Jun2003, Vol. 131 Issue 1318, p119 

  The article reports on employment tax developments in Great Britain. The Inland Revenue has announced that it no longer has any objection to employers issuing duplicate forms P60 to their employees as long as they are clearly marked with the word "Duplicate." Meanwhile, mandatory electronic...

• Cato Institute. Moore, Stephen // National Review;1/29/1996, Vol. 48 Issue 1, p46 

  The article comments on withholding tax in the United States. The federal government of the United States introduced withholding tax in 1943 as part of the World War II effort. This was seen as necessary in order to prosecute the war and to ensure the defeat of the country's enemies. Legislators...

• How to sidestep those payroll tax pitfalls. Battersby, Mike E. // Dermatology Times;Sep2004, Vol. 25 Issue 9, p114 

  Focuses on the challenges in making compliance on complex rules on electronic deposits withholding. New regulations of the Department of Labor; Impact of the new regulation; Provisions in Federal Insurance Contributions Act.

• Internal Revenue Service Issues Proposed Regulations on Supplemental Wage Withholding.  // Venulex Legal Summaries;2005 Q1, p1 

  The article examines the Internal Revenue Service regulations with respect to income tax withholding on supplemental wage payments. Under the proposed regulations, any payment of wages to employees that is not regular wages is considered supplemental wages. Supplemental wage payments from all...

• The Impact of Income Tax Withholding Position and Stock Position on the Sale of Stock. Falsetta, Diana; White, Richard A. // Journal of the American Taxation Association;Spring2005, Vol. 27 Issue 1, p1 

  The objective of this study is to investigate the effect that stock position (gain or loss) and income tax withholding position (tax payment or tax refund) have on the sale of stock at the end of the year. Prior investigations of stock position have shown that individuals are more likely to sell...

Read the Article