[Jimbo]

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always get that reaction from fellow small business owners. Its a natural reaction, but aside from being a basic tenet of economics let me explain it to you another way. Presume you offer a $50k per year salary with a new employee. It's really a market rate, if the employee demands more you can get someone else and if you try to pay less he has other job offers at thst rate. Before he starts work the government suddenly imposes a $4k employer paid payroll tax. You tell the employee you only think his labor is worth $50k total and can only pay him $46k. He gets angry and calls his other job offers, he'll find they have suddenly dropped $4k as well, they cant pay any more than their original costs either (or they would have bid more before the tax was imposed).

Employer paid payroll taxes are paid by employees in the form of lower wages. It may not be as clean as my example, some employers may eat part of the tax when its imposed but over time a supply demand curve that intersected at $50k will now intersect around 46k. I say around because the supply demand curves are altered


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DesertCat,

With this I all agree but I don't see the converse as being as true (does that make sense?) In other words all things being equal if my costs increased and the costs of all my competiors increased what you describe as above should occur. But when I am already spending a specific amount and then get what amounts to a rebate I may very well share a portion of it with my employees (as I have in the past, usually in the form of bonuses) but think that I would keep a portion for myself and my competitors would as well keeping an equilibrium in the fair market value of identical labor. Am I off base here on my thinking?

Thanks for the example, it was very clear and useful.

Jimbo