FRINGE BENEFITS: TO TAX OR NOT TO TAX?

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Abstract
Fringe benefits constitute a sizable proportion of total pay. Simulations show effects (1) of tax policy on the level of employer contributions to fringe benefit programs—both in the aggregate and by family income and (2) of various ceilings on the value of contributions excluded from taxable income. Changes in tax treatment of fringes would affect health care cost inflation, personal savings, the age of retirement, and labor turnover. Directions of effect are known, but magnitudes of effect are not generally known with any degree of precision. The discussion of three policy options illustrates the tradeoffs among distributional and efficiency considerations as well as implementation problems involved in altering tax treatment of fringes.

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