People who are struggling financially get an enormous boost from the Earned Income Credit. Often the EIC is the only incentive to join the working poor instead of remaining the non-working poor. The EIC serves a valid public interest.
Businesses also struggle financially. Sometimes the employer makes less than the receptionist. I recommend that struggling businesses receive a tax credit for payroll taxes paid. A business operating at a loss would receive a tax credit equal to the lesser of payroll taxes or the net loss. The credit would be phased out as earnings relative to payroll taxes increase. If net income exceeds twelve times payroll taxes then the credit would be zero. Under this plan General Motors would receive several billion, while Chevron would receive nothing. The credit would apply to sole proprietors filing a Schedule C as well as corporations or LLCs filing a Form 941.
The goal of this plan would be to keep struggling employers in business. Some layoffs would be smaller as a result of the diminished cost of employees. There would be less incentive to export jobs to Mexico, Poland or China.
The mechanics of such a credit are simple. The employer prepares his Form 941 as usual but remits no tax or less tax if the employer expects a credit at the end of the tax year after preparing the income tax return. The income tax withheld from the employees' checks would still have to be remitted. In cases were there was a 100% credit there would be a check back to the struggling employer for the state payroll tax.
Eventualy over several years a million jobs would be saved or added and a significant part of the cost would be recouped. Many employers would rebound and lose their status as struggling employer and their tax credit. As there will always be some struggling employers that we want to keep employing, this credit should be permanent.
If jobs are the golden egg that create demand and sustain and create additional jobs, then employers are the geese that lay these golden eggs. Reagan's 1983 tax act increasing payroll taxes by one half killed many geese and weakened many others. This struggling employer tax credit is very targeted toward stimulus and is infinitely more appropriate than a general tax cut that will weaken the dollar without creating any benefit lasting more than a few weeks.
While trickle down economics has been totally discredited, there is nothing wrong with being pro business,or even pro big business. This credit is the opposite of trickle down. This credit is for businesses both large and small, the only requirement being that the business earns little or no income relative to payroll tax expense.
There is not enough consciousness of the damage done to US employers when federal payroll were increased 50% by Reagan and Tip ONeill in 1983. Millions of jobs have been lost over the years as a result of that legislation, the largest tax increase in history. Lets correct that error by enacting a Tax Credit for Struggling Employers.