Why are payroll taxes regressive?
What will be an ideal response?
Payroll taxes refer to Social Security and Medicare taxes. In 2008, the Social Security tax rate was 6.2%, but that tax rate only applied to the first $102,000 of a person’s wage income. The Medicare tax was 1.45% of all income. Therefore, the combined tax rate is 7.65%. Thus, if a person earned $102,000, he or she would pay $6324 in Social Security taxes and $1479 in Medicare taxes. A person making twice that amount ($204,000) would pay Social Security taxes on the first $102,000 of income ($6324) and 1.45% of the full income ($2958). The total tax at this income level would be $9282 for an average tax rate of 4.55% of wage income. Thus, the tax is regressive because as wage income rises, the tax rate declines.
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If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:
a. elastic. b. inelastic. c. perfectly inelastic. d. unitary elastic.
Network effects occur when the value of a platform to its users changes as the number of users rises.
Answer the following statement true (T) or false (F)
During the recessions of the early 1980s and of 2007–2009, the unemployment rate in the United States: a. increased significantly
b. decreased to almost zero. c. became negative. d. remained constant.
A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. This equilibrium comes about in part because
A. workers are unaware of the pool of unemployed workers as long as they keep their job. B. workers will do anything to be paid a higher wage. C. workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job. D. the firm agrees to not replace labor with capital. E. the firm pays workers according to a tournament.