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Problem:

The portion of the Federal Insurance Contributions Act (FICA) tax paid by employers is 7.65 percent and the portion paid by employees is 7.65 percent (for a total of 15.3 percent).

Suppose that absent FICA taxes, workers receive a competitive equilibrium wage of $10.00 per hour and that with FICA taxes divided equally between employers and employees, the market wage is $9.52 per hour. What is the incidence of the FICA tax? For simplicity, assume employers pay $0.765 in FICA taxes and workers pay $0.765 in FICA taxes for a total of $1.53.

In this example, works pay ____ percent of the FICA tax and employers pay ___ of this tax. Explain comprehensively and show all workings.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91147056

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