Employee Retention Credit

WM Oversight: The Employee Retention Tax Credit Experience: Confusion, Delays, and Fraud, July 27, 2023

The Employee Retention Tax Credit essentially picked winners and losers, as happens in Democratic Socialism (as opposed to social democracy). It favored large firms that did not need it (but demanded it anyway), as well as fake firms that used it to defraud the people. While it sounded good as a response to the pandemic, a more comprehensive reform would be better.

Another feature of the pandemic was increased unemployment benefits. If benefits were higher on a permanent basis, there would not need to be an increase. In calmer times, the nation should take care of this for the next recession or pandemic.

Unemployment insurance also needs to be reformed to be a no-fault program,particularly for younger workers. This should be the case with low wage jobs especially. Workers need to be able to walk away from a bad job and still receive benefits. This will force the free market to adjust wages for essential workers. When time runs out on benefits, beneficiaries should automatically be enrolled in some form of paid training (from ESL to GED to Associates degree or technical school) in order to maintain benefits (assuming there is no pandemic underway - then benefits should last until restrictions are ended.

With the next pandemic, closures should not occur in areas where the disease has not yet hit. The United States shut down too soon and it did not help. The disease spread in private, one sneeze at a time, not from public activity. Shutdowns should have been localized.

Unemployment insurance should also include payment of the child tax credit with benefits. When people return to work, benefits should come with wages, not from the IRS at the end of the year (or during the year during a crisis). This helps work pay.

During the pandemic, it was $3,000 per year, or $3,600 for younger children. The President’s Budget proposes that the Child Tax Credits enacted as part of the American Recovery Plan Act be restored. During that period, payment of the child tax credit was in advance of the annual tax filing. This is appropriate and will change the culture of such credits, which should be for continuing support, not an annual bonus. 

I would make the Child Tax Credit generous enough to abolish Food Stamps for families with children. The child tax credit should provide adequate income to feed, clothe and house an additional child, which can be up to $1000 per month. The current amount, which is set to expire in 2025, is $2000 per year. It will revert to $1000 per year, or less, because it is non-refundable. The President’s Budget proposes restoration of pandemic level amounts be restored and made permanent. It is not adequate, but it's a start.

During the pandemic, the IRS managed payments. Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare” that the Gentleman from West Virginia so objects to.” 

The government should not be the national paymaster for every family.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. 

Tax reform can be used to facilitate this process. Instead of having each family file to collect their child tax credits and EITC (as an end of the year bonus), enact an employer paid subtraction value added tax and make child tax credits and health insurance tax benefits an offset to the payment of this tax and remove most families from having to file at all. Tax offsets could also be created to fund paid family medical leave, sick leave and childcare provided through employers.

This approach is superior to the prebate mechanism proposed for the Fair Tax and for the same reason. Again, the government should not be the national paymaster for every family.

These reforms MUST be scored as pro-life legislation. The chief obstacle for funding families is not the feminist movement. It is the so-called right to life movement who would rather women be penalized for having abortions than subsidized so that they are not necessary. Over the course of many decades, I have had conversations with conservative members of the pro-life community. When push comes to shove, they oppose the measures above because their objections to abortion are more about sexuality than the welfare of children.

In the pro-choice movement, many jump to the defend women’s bodies argument before first addressing the need for adequate family income. Doing so now will shame the leadership of the pro-life movement into supporting these reforms.

Many in the pro-life movement already do. Catholic Charities USA, NETWORK and the Catholic Health Association all stand with working and poor women. They must be very publicly leveraged to get the U.S. Conference of Catholic Bishops behind them as well - and to have the bishops insist that these measures be considered must-pass legislation for the computation of pro-life voting records. 

Catholic members of Congress and the President should also lead on this effort. It is time to stop grandstanding on this issue. The movement got what it wanted in Dobbs (although to speak frankly, the states which banned abortion were not friendly to it to begin with). Eventually, some form of compromise between a national ban and nationally guaranteed rights must take place in Congress. This was always inevitable. 

For the present, however, the primary pro-life issue must be to assure that, now that abortion is now illegal in some places, it must be made rare by adequate support of families with children. 

Attachment: Consumption (Fair) Taxes video links included