"Real" Income - Page 7

Judge_Leo · 06-11-2007, 10:06 AM

Quote:

Originally Posted by norden

It's simple math.

If the employee makes $10/hour, the employer 'matches' $.75. So the employer is really paying $10.75/hour. If they didn't do this 'matching', and instead the employee paid the $.75 directly, this would save the employer .75, but since the employer is now paying less money, and the employee is making less, everything else being equal, supply and demand will kick in until the employer now has to pay $10.75 an hour (where equilibrium used to be), and the employ is paying that extra .75 in taxes, so they are taking home the same amount as the used to.

It's a semantics game that is meant to confuse what is really happening.

Interesting logic, how does it apply to a self-employed person?

xTYBALTx · 06-11-2007, 10:23 AM

Quote:

Originally Posted by Steeler

To lump the basic necessities of an office environment in with employee compensation is a rhetorical tool for contract negotiation, not a valid metric for a business model.

When figuring total employee compensation, you account for everything which keeps your employees from going elsewhere. The water cooler isn't necessary - you could ask people to bring their own. But that'd be pretty mean, and people would probably quit.

But it's a minimal cost anyways. The water cooler doesn't come near, for example, the 7% FICA matching. And that 7% in question without doubt comes straight from the employees paycheck. Just as a gym membership would come straight out of the paycheck.

Judge_Leo · 06-11-2007, 10:42 AM

FYI please read at the second paragraph. "To better understand how FICA tax is set up....."

http://money.howstuffworks.com/benefits14.htm

Kerostasis · 06-11-2007, 12:47 PM

Quote:

Originally Posted by norden

It's simple math.

If the employee makes $10/hour, the employer 'matches' $.75. So the employer is really paying $10.75/hour. If they didn't do this 'matching', and instead the employee paid the $.75 directly, this would save the employer .75, but since the employer is now paying less money, and the employee is making less, everything else being equal, supply and demand will kick in until the employer now has to pay $10.75 an hour (where equilibrium used to be), and the employ is paying that extra .75 in taxes, so they are taking home the same amount as the used to.

It's a semantics game that is meant to confuse what is really happening.

Actually, its simple Economics. Not ordinary math. Economics uses slightly different rules, which say that the wage without the FICA matching would be somewhere in between, like $10.37 for example. Finding the exact number requires calculating the elasticity of supply and demand, at which point it stops being "simple" economics and becomes "complicated" economics.

The original idea behind making the business pay 50% of FICA was not to "confuse" the worker into not realizing how much he was paying, it was to tax the business and the worker both an equal amount. It doesn't quite work that way in practice though.

What "simple" economics CAN tell you is that way the FICA bill is split will be pretty much the same regardless of who the feds send the bill too. Currently the feds bill the employee for 50%, and the employer for 50%. Economics says the market will decide who pays how much % of the total, and the actual bill doesn't matter much. However, it will never be one person paying 100%. The bill will always be split. Depending on market conditions, it may be pretty close to a 50/50 split, or the employee may really be paying 3/4 while the employer only covers 1/4 or something. But its gonna be split.

06-11-2007, 10:42 AM	#93 (permalink)
Judge_Leo Join Date: Mar 2007 Location: Northern Minnesota Age: 48 Posts: 83	Re: "Real" Income FYI please read at the second paragraph. "To better understand how FICA tax is set up....." http://money.howstuffworks.com/benefits14.htm

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