Assume that a country's government is concerns about growing income inequality and wants to implement a program that will increase the total earnings of the unskilled. It is considering two alternative changes to its current payroll tax, which is levied on employers as a percentage of the first $100,000 of earnings:

a. Extending employer payroll taxes to all earnings over $100,000 per year and increasing the cost of capital by eliminating certain tax deductions related to plant and equipment;

b. Reducing to zero the employer payroll taxes on the first $30,000 of earnings but continuing the payroll tax on all earnings between $30,000 and $100,000. There would be no taxes on earnings above $100,000.

Analyze these two proposals separately (10 points per proposal). In your analysis, you should comment on which proposal is more likely to accomplish the aim of increasing the earnings of the unskilled, and why that is so (5 points).