THE IMPACT OF THE 1981 TAX ACT ON FRINGE BENEFITS AND FEDERAL TAX REVENUES

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Abstract
One impact of the income tax rate reductions of the Economic Recovery Tax Act of 1981 is to raise the effective price of nontaxed employee fringe benefits such as pensions and group insurance. As employees substitute cash income for fringe benefits, the federal income and payroll tax bases expand. Federal tax revenue is projected to rise by as much as 4 percent as the wage share of employee compensation increases in response to lower tax rates. Taxing fringe benefits will raise revenue by 12 percent if work effort is unaffected by a broadening of the tax base.

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