RE: Question: Does the employee in fact pay the employer's share of FICA taxes?

[James <jamesk_51@hotmail.com>]

>From: Andre Dermant 

>>>>I have read numerous reports that discuss the Social Security by assuming that in fact it is the employee who pays the employer's share of FICA taxes, namely 6.2% in the form of lower salary, but I have never seen any study that clearly and unambiguously demonstrates this. Does anyone know of such study?

There is really no question of 'fact' here that a study could prove or disprove.  It is really a philosophical view.  If you tried to do such a study, you would find mixed results.  Those type of studies are better described as 'efficiency studies' that many companies do in fact conduct.  Frequently, those studies result in 'downsizing'.   It is more a reflection of the companies management skills and decisions, rather than anything that has to do with SS. 

The philosophical view says that it makes no sense for a capitalist to hire an employee who does not add value to the capitalist's investment.  If I hire somebody to be my  worker in my widget factory, he not only has to earn his wage, he must earn his benefits, such as vacation pay, health benefits, and the employers share of SS taxes, and also overhead (building, lavatories, janitors, personnel dept) and the widget making equipment AND a profit.  Otherwise, the whole endeavor makes no sense to the capitalist.

That simple view works OK in a simple example, but becomes more complex when we get to real world.  Overhead 'costs' are real, but they are not directly productive, so how do you evaluate what they 'earn'?  You can make a profit without a maximally efficient 'production' workforce, and so still be happy with such.  But how do you look upon inefficiency in an 'overhead' function.  That appears just to be a 'drag' on profits.  Gov't employment obviously is analogous, but more complicated.

The real question as it pertains to SS, is what happens to the employer's share in SS reform.  If the reform involves some kind of individual account, the gov't could require the employer to 'contribute' to it as it does now with SS.  If SS is just ended with complete privatization, there is really no way for the gov't to 'force' employers to pass that 6.2% along to the employee.  Other than with the 'minimum wage', the gov't really doesn't set wages, and therefore how could they tell whether the employer is paying the employee that extra 6.2%.   So how can we guess what would happen?

Most likely, those who have the most valuable skills now (reflected in currently higher wages) would be most likely to get that 6.2% and those with the least valuable skills (reflected in low wages above minimum) most likely not to.  Indeed, it would not merely be a decision by an owner who could be said to be 'good' or 'bad', but reflective of the 'employment' market and other  competative pressures in the free market.   In other words, what the competition does influences what I can do in terms of 'costs'.

The philosophical view that the employee really 'pays' the employer's share of SS taxes is something I would agree with.  It is not really something that can be 'proved' overall for each employee.