Answer
The proposal to raise the payroll tax paid by firms and using part of extra revenue to reduce the payroll tax paid by the workers will not accomplish the senator's goal to make workers better off. Lawmakers cannot easily dedicate the distribution of tax burden between firms and workers. The key feature of payroll tax is that it places a wedge between the wage the firms pay and the wage the workers receive. This division of tax burden between workers or levies the tax on firms or divides it between them in a given ration shown in the figure below
Work Step by Step
The incidence of tax depends on elasticity. Since the supply of labor is inelastic, the workers bear the greater burden of the payroll.
