1. How might the new taxes affect the demand for American workers overseas?

Since so many overseas companies have programs in place to protect workers from having to pay higher income taxes and thus lose take-home pay, the increased taxes on American workers could dampen demand for U.S. workers overseas. With estimates of a two to one ratio of company costs to increase taxes, an increased tax burden on an American employee of $10,000 ends up as a $20,000 increased cost to the employing firm. This significant cost increase to companies based overseas could cause those companies to seek employees from other countries that do not impost income tax on citizens working overseas instead of American workers and the inherent additional cost that comes with hiring them. As reported in the article, Australia, England, and Canada are all countries that exempt their citizens working overseas from income tax.

2. Is an income tax regressive or progressive?

An income tax is considered to be regressive. In economic terminology, a tax is progressive if its average rate increases as income increases. A regressive tax claims not only a greater absolute (dollar) amount but also a larger percentage of income as an individual’s income increases. What is interesting to note in this case is that the incidence of personal income taxes normally falls on the individual. In this case, because companies typically make up for any increased taxes falling on employees working overseas by paying them higher salaries, the burden, or tax incidence actually falls on the companies. Additionally, to the extent that the companies can pass the cost on to buyers of their products, at least some of the burden will pass on to consumers.

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