Payroll Tax

See: Payroll Deduction Plan.

Quiz time: what do the employee payroll tax, the employer payroll tax, and the income tax all have in common? The economic burden of all three falls almost entirely on the workers.

There are two kinds of payroll taxes: the employer paid one and the employee paid one. The employee payroll tax is that amount that gets taken out of each of your paychecks: the “withheld” amount. Your employer is withholding those and paying those for you.

The other kind, which you probably never see or hear about as a worker...is the employer paid payroll tax. This is based off of how much employers pay their employees.

It’s not uncommon for economists to lump the two types of payroll taxes together when doing economic analyses, since both are ultimately paid for (in the economic sense) by the workers.

If employers are paying their own payroll tax, why does the economic burden of it fall on the employees? This is about opportunity costs. Economists of many stripes have found that payroll taxes are always taken out of wages, not on other things like investments. If there was no employer payroll tax then, workers' wages would likely be higher. That makes the employer part of the payroll tax like a ghost wage: something you lost that you never even knew you had.

But hey, taxes aren’t all that bad. Some of the highest-taxed countries in the world are the happiest, boasting long vacation days, baby-time, lower crime, and less (or no) homelessness.