On the last point: does that actually happen, though? That's what idealized economic theory would predict, but large corporations' internal structure is quite far from idealized economic theory. My guess would be that if you were able to set up some experiment where one employee cost $100k while somehow having $0 payroll taxes, while another employee cost $90k plus $10k in payroll taxes, the employer would, more often than not, hire the $90k employee.
This happens already, I believe, as regards families. Employees with families cost more in health-insurance benefits than single employees, if the employer offers to subsidize a percentage of health insurance (as most do). But employers don't pay single employees of equal qualifications commensurately more, despite what economics would predict.
I don't believe companies can legally discriminate based on family status, either in hiring or pay. However, they can, and do, make people with families pay substantially higher premiums for health care. At my company, a employee w/ family pays 7 times as much out of their paycheck for health insurance than a single employee does.
It's not clear what would happen in aggregate, but if social security and medicare taxes were abolished tomorrow, I would certainly demand that the equivalent amount be added to my gross compensation, and I would certainly agree to this demand if I were an employer.
This happens already, I believe, as regards families. Employees with families cost more in health-insurance benefits than single employees, if the employer offers to subsidize a percentage of health insurance (as most do). But employers don't pay single employees of equal qualifications commensurately more, despite what economics would predict.