If wages are on a "net" basis, the effective rate of income would go down initially, as the worker is not getting "back" his taxes (they are all going into my pocket as his employer), yet he has a new set of sales taxes. I can guarantee the unions would raise hell about this, as the negotiated wages are gross, not net. Also, the health insurance industry would clearly be affected, as the benefits no longer have tax consequences (group health rates are unbelievable!).
All that said, it still sounds like a good deal.
Dear chronic_loser,
"Also, the health insurance industry would clearly be affected, as the benefits no longer have tax consequences (group health rates are unbelievable!)."
This is potentially a deal-breaker, especially in states that have high health insurance premiums (like mine).
Our average family policy (we offer a cafeteria plan with four choices) is over $800 per month. $10,000 per year.
I pay the bulk of that, and the employee must pay the rest. In both cases, because we have a cafeteria plan, payments are made with pre-tax dollars.
Under the NSRT, our average policy will now include a bit of sticker shock, with a $3,000 per year NSRT.
In that Dr. Jorgenson's model does not give back any of income or payroll taxes to the worker, this comes out directly out of the pocket of the worker.
We can hope that the cost of the health insurance plan falls 20% (and I think it's quite possible) to $8,000. Then, the tax is only $2,400, and the total bite is only $10,400, only a little more than what it's costing the worker now (because don't let anyone fool anyone else - even though I "pay" for most of the premium, the worker really pays for it in the form of significantly lower wages).
But to the degree that the employer pays the worker's premium, it becomes problematic. Here's why:
If the employer is paying 75% of the premium (pretty common in this area), then that's $7,500 of additional compensation that the worker is currently getting, even though it shows up nowhere on his check or his paystub.
The worker is paying $2,500 of his pre-tax gross as his contribution to the premium.
After the NSRT, assuming a price decline of 20%, the employer will be paying $6,000 + 30%, or $7,800. However, to keep things equal, the employer will need to shift the tax to the worker. Otherwise, the employer did not receive a 20% cut in this very significant part of compensation, and he becomes unable to lower his rates by 20% through payroll savings.
So, the worker's initial contribution of $2,500 is reduced to $2,000 (20% price drop), but increased by the tax to $2,750 PLUS the $1,800 tax on the employer's part of the premium, for a total of $4,550. The worker is screwed out of over $2,000 per year, because of the fact that this part of compensation was never taxed in the first place.
sitetest
I totally disagree. The Employer contribution component of Social Security and perhaps other taxes was never the employee's. The employer sends it to the government on the employee's behalf.
The employee never had nor has possession or control of that money.