Question

In 2010 the federal government reduced the Social Security Tax withholding rate from 12.4 percent (6.2 percent on both the employer and employee) to 8.4 percent (4.2 percent on both the employer and employee) on the wages of all workers. If the supply of labor is relatively inelastic when compared to the elasticity of the demand for labor, the burden of this tax will

Answer 1

Answer:

The burden of tax will be more on employees, tax reduction will be less for employees than employers.

Explanation:

Tax burden is more on buyers , if the demand is relatively more inelastic ; and tax burden is more on sellers, if the supply is relatively more inelastic.

If federal government reduces social security tax (from 12.4% to 6.2%) :

Since supply of labour is more inelastic, the burden of tax would be more on labour suppliers i.e employees. So ; a total tax reduction 6.2% is likely to reduce tax burden borne by labour demanders i.e employers, more than reduction in tax burden borne by labour suppliers i.e employees (as the labour supply is more inelastic).