Fringe benefits and the effect of tax reform

The growth of fringe benefits as a percentage of compensation has been phenomenal in recent decades. For production and related workers in manufacturing industries, employer expenditures on private pension plans and life, health, and accident insurance increased from 4.2% of total compensation in 1959 to 9.7% in 1977. A median-voter model is developed to provide insight into how compensation is split between cash and noncash benefits. This insight is applied to macro data, drawn from the National Income Accounts and the Chamber of Commerce, for the purpose of testing the model and predicting the effects of reforms aimed at taxing fringe benefits. The model withstands the application test fairly well. It predicts that taxation of fringe benefits as cash in 1983 would have resulted in 5%-20% less revenue received by financial and insurance companies in the business of marketing fringe benefit items and services to employers.