Here’s another, better idea:
The government could tell companies that agree to retain all their workers on the payroll that they can keep the money they would have otherwise withheld from employee paychecks or paid themselves in payroll taxes. That would reduce their payroll costs by roughly 15 percent and apply to all employees, no matter how much work they are actually doing.
In addition, the federal government could offer a tax credit of $300 a week for every full-time employee (proportionately less for part time) on the payroll for each week of the emergency shutdown. The credit could be applied against taxes owed in any of the next three years. Again, the credit would be for all workers, no matter whether they are full time or part time or how much work they are actually doing.
These are not tax breaks with benefits that accrue primarily to business owners and shareholders. They are tax breaks meant to keep income flowing to workers during a short-term national emergency using the payment system that is already in place — the payroll system — to funnel government money to households.
Inevitably some companies, or divisions of companies, will continue to operate at or near full capacity during the lockdown, and continue to take in most of their usual revenue. They would neither need nor deserve tax incentives to keep paying employees, and I imagine some simple tests could be devised to make sure they do not qualify for them.
It is also possible that some businesses would decide not to take advantage of the program and lay off some or all of their employees. Those workers, along with the self-employed, could be made eligible for an expanded and expedited unemployment insurance program. I suspect that would involve a small minority of firms representing an even smaller minority of employees.
How much would all this cost the Treasury? Here’s a quick back-of-the-envelope calculation:
Roughly speaking, there are the equivalent of 110 million full-time workers in the private sector, with average income subject to the payroll tax of $900 a week. That works out to about $15 billion a week in revenue that the government would lose from the payroll tax holiday. Then there is a $300 tax credit for those 110 million employees, adding another $33 billion a week.
Altogether, that works out to roughly $50 billion a week. A four-week lockdown would cost $200 billion, six weeks $300 billion, eight weeks $400 billion. These numbers compare favorably with other proposals floating around Washington.
These tax incentives, coupled with expanded unemployment insurance, would go a long way toward ensuring that most households had the necessary cash to get through an economic lockdown, greatly reducing the severity and length of any recession. They are relatively quick and easy to implement. And they avoid the risk of laid-off workers losing their health and other fringe benefits. They represent a fair and efficient way to keep people employed and spending.
Of course, there will still be need for additional programs to help airlines, cruise lines, hotels and other industries whose revenue is evaporating but still have large non-payroll expenses such as paying their leases and servicing their debts. That could come in the forms of loans, loan guarantees and temporary equity investments. While those rescues could involve hundreds of billions of dollars more, most or all of that money would be repaid, and then some, when sales, profits and stock prices recover.