The NYT interviewed some people, andtwo issues showed up in their article Practically Speaking – Small Businesses Critical of Stimulus Bills – Tax cuts, and a payroll tax holiday. In some ways, they make sense, but neither does much as concerns increasing demand in the short term, and cash flow wise, if one has enough revenue to benefit from a tax cut, cash flow may not be that big an issue. (Granted, its always an issue, and with reductions in operating lines of credit, a critical one for many, but a tax cut would have minimal effect).

The tax cut issue is related to supply side economics, which has proven not to work very well, especially as of late when demand is crashing. Now, it might stimulate investment… but will it be beneficial investment to help getting out of this mess? Thats the big issue. In most cases, I dont really think it will, as its on the supply side, and its pretty easy to invest in any number of non-beneficial areas. Ie, in most cases,  it would not be prudent to buy new capital equipment with a declining demand, even treasuries would have a better short term return, even with negative interest rates.

An alternate ideas is a FICA tax holiday on the employers side of the equation. That would reduce payroll overhead substantially, help with the cash flow aspect, would keep some people employed, as an investment in the future. Ie, rather than doing a RIF of 10%, make  it 3%, and invest the other 7% of employees into long term projects. It obviously doesn’t help with demand, but it would work wonders for keeping employees, and their institutional knowledge, plus upgrading and maintaining business infrastructure.

Granted, FICA is a sacred cow… but this is an investment which will have tangible and immediate returns… and if need be, rather than changing the marginal rates or capital gain rates, instead, leave them along, and cover the costs of the FICA tax holidy with them as is. Political suicide, probably, but its likely to have a huge return both short and long term.