18 Questions
What determines the division of the tax burden between workers and firms?
The forces of supply and demand
What is the key feature of the payroll tax?
It places a wedge between the wage that firms pay and the wage that workers receive
What happens to the wage received by workers when a payroll tax is enacted?
It falls
When a payroll tax is enacted, what happens to the wage paid by firms?
It rises
What is the outcome of a payroll tax in terms of the tax burden?
Workers and firms share the burden
What is the main lesson of tax incidence in the context of a payroll tax?
The true burden of a tax depends on the forces of supply and demand
What determines how the burden of a tax is divided between buyers and sellers?
The elasticity of supply and demand
When the supply of labor is inelastic, who bears most of the burden of the payroll tax?
Workers
What is true about the distribution of the tax burden in the payroll tax discussed in the case study?
It is mostly borne by workers
When the demand curve is inelastic and the supply curve is elastic, who bears most of the burden of the tax?
Buyers
When the supply curve is inelastic and the demand curve is elastic, who bears most of the burden of the tax?
Sellers
What determines who bears the burden of a tax?
The elasticity of supply and demand
When the government levies a tax on buyers, what is the ultimate outcome?
The buyer and seller share the burden of the tax
What happens when the market reaches a new equilibrium after taxation?
The buyers and sellers share the burden of the tax
What is the purpose of the FICA tax?
To fund Social Security and Medicare programs
Who bears the burden of the FICA tax, according to Congress?
Half by the firms and half by the workers
What percentage of earnings was the FICA tax in 2015?
15.3 percent of earnings
What is the worker contribution in the FICA tax?
The amount deducted from workers' paychecks
Learn how the burden of a payroll tax is distributed between workers and firms, based on the elasticity of labor supply and demand. Understand the impact of taxation on the labor market.
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