You are confused, I don't think that.
"Businesses will not be able to pay 100% of their paychecks to their employees, because they need these "embedded tax" savings to be able to lower their selling prices."
The business is paying that full 100% already -- split between the employee and the IRS. Giving all 100% to the employee makes no difference in payroll expense for the business.
From an employee standpoint, where the business does save considerably in on the employer portion of wage taxes which you didn't mention. You seem to not be aware if the 7%+ for the employer portion of employee wages which is over and above the employees gross pay, and in "Bob the Baker's" case, the 15%+ of his wages that currently go to FICA & Medicare. How come you missed that part?
You also seem to ignore all the supplies that Bob the Baker buys and the average of 15-20% embedded income and wage taxes in those.
BTW. You business wouldn't have anything to do with Taxes, would it?