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The NFIB Employment Tax Credit would provide a maximum credit of twenty-five percent of the increase in FICA quarterly taxable wages. The quarterly wage increase is determined by comparing the quarterly wages in the current quarter with the same quarter for the previous year. The wages for the previous year's quarter are first adjusted by an index, that would take into account increases in the cost-of-living, increases in the FICA wage base and other factors, so that an increase in FICA taxable wages is primarily attributable to an increase in the number of employees, not just an increase in wages paid to the same employees.

The credit is twenty-five percent or the actual percentage of increase in FICA taxable wages, whichever is less. This

provides an employer with a greater incentive to increase his workforce than an across-the-board credit.

The NFIB Employment Tax Credit also provides for recapture. In the event there is a decline in FICA taxable wages, the same

formula would apply in calculating he recapture.

However, in no

event would the recapture exceed the credit allowed.

The recapture

provision would not apply after five years.

The employment tax credit or the recapture would be applied against the employer's quarterly payroll tax liability.

The principal beneficiary of NFIB's Employment Tax Credit would be the small employer, not the large corporation that would receive the lion's share of the benefits under the Administration's

proposal. If jobs are the objective, an employment credit aimed at the small employer is the proper approach.

Last Thursday, the House Ways and Means Committee recognized the need for this type of small business approach when it substituted a Job Credit provision for President Carter's proposal. While its specifics are different than the NFIB proposal, it was passed with small, labor-intensive firms clearly in mind and is a big step in the right direction.

Mr. Chairman, thank you for giving me the opportunity

If you

to present NFIB's views on the President's proposal.
or the Members of the Committee have any questions, I'11 be
delighted to try to answer them.

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10.

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If line 5 is an increase, employment tax credit
to be applied against payroll tax liability for
current quarter (line 5 x 6) but not in excess of
25 percent of line 5.
If line 5 is a decrease, employment tax recapture
to be added to payroll tax liability for current
quarter (line 5 x 6) but not in excess of line 9.
Employment tax credits carried-forward to line 8,
next quarter's Form No.6000 (line 9, plus 10, or
less 11).

12.

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Attachment 1

Senator HASKELL. Then we will go to Milton Stewart who is the president of the National Small Business Association.

I understand, Mr. Stewart, that this idea we are discussing is not only a new idea to you, but it may be your idea.

STATEMENT OF MILTON STEWART, PRESIDENT, NATIONAL SMALL

BUSINESS ASSOCIATION

Mr. STEWART. Well, I am tempted, Mr. Chairman, to respond in as ambiguous a way as I can based on my reading of the New York Times in the last 3 years. Actually employment tax credits have been seriously discussed among economists for many years. I think Senator Benson's subcommittee of the Joint Economic Committee in their report on employment tax credits cite a number of fascinating studies.

It is true, Mr. Chairman, that our association did begin to press for an experiment with a job tax credit 2 or 3 years ago because we felt based on surveys of our own membership that it would work to actually create jobs.

Perhaps I could identify myself for the record, do I need to.

My name is Milton Stewart and I am appearing for the National Small Business Association of which I am president.

I should say, sir, that 88 trade associations, a list of which have been furnished to the committee, have joined with us in urging in principal that an elimination of the current high unemployment to small business sectors should be the employer of first resort with the incentive being provided by a job creation tax credit.

Our reasons, Mr. Chairman, for urging this step upon the Congress are set forth in a statement that I asked to be included in the record out of deference

Senator HASKELL. It will be included in full.

Mr. STEWART. Out of deference to your time pressures I will not read it.

Perhaps I should begin by adverting to the fact that this step represents a major breakthrough in our view in national tax policy, an overdue acknowledgement of the needs of two groups who's plight with respect to taxation has been very limited, the unemployed and small business.

We see this as an experiment. We do not claim to have all the answers that everyone would like to have about this or any other tax benefit proposed or in place. We do believe that most of the criticisms which we have seen made in public have two characteristics. They either can be met only by experimentation or they may also be made of other kinds of tax incentives including particularly the incentive tax credit which has been on the books now for more than 10 years.

In your letter inviting us to appear, Mr. Chairman, you asked a series of specific questions, and I suppose I should summarize our responses as I have done in the statement.

First, we definitely believe that the employment tax device should have as its objective a significant increase in employment as well as the distribution of a tax benefit.

Second, we believe maximum employment could be stimulated by a credit of not less than 40 percent when more than 50 percent of the first year's wage cost.

Third, we believe the adequacy of the dollar amount is an incentive for creating jobs varies with the size of the perspective employer as reflected in our suggestions above.

Fourth, we believe the dollar amount should be approached as a percent of wages and that level of incentive can be varied by limiting the credit to $5,000, $3,000, and $1,000 depending on how many jobs are created. We have some suggestions along this line.

Fifth, the job credit tax credit structure we propose is, we believe, a reasonable compromise to the needs of small and medium-size business and maximizing job creation. Large companies need the credit less, benefit far more from the investment tax credit, accelerated depreciation and other tax created advantages.

Sixth, we believe that eligibility for the credit should require some period of unemployment. Our initial preference is for one quarter during which no social security has been paid in the employee's account.

Seventh, new entrants to the labor force would not be prejudiced by this requirement since no funds would have been paid to their account during the previous quarter.

Eighth, we consider limiting the number of employees subject to the benefits appropriate and necessary either directly with a limit on the actual number of people or indirectly by limits on the extent of the credit per job and by the total benefit available to the employer or both.

Ninth, we believe that certification of the unemployed eligible should be made by the employer when he files W-2's at yearend. This is just one way. This part of his tax return would be subject to the same sanctions and penalties as any other for evasion of fraud.

Tenth, we believe that the employer should be able to claim the credit to the extent that his wage total exceeds that of last year and we see no objection to the added 3 percent required in the House Ways and Means measure.

Eleventh, the mechanics for establishing such a base would be summing the wages paid for W-2 employees last year, and then summing the wages paid for the current year.

I am sure there are many administrative and management problems involved in launching this new program, but I suggested at one point that nothing we are talking about is any more and probably not as complex and difficult for the IRS as handling accelerated depreciation.

Our general goals are simple. We have given as an appendix a description of the labor force of the United States private sector by number of employees. Generally speaking approximately one-quarter of it, 14,800,000 is in some 9,000 companies which employ 500 or more people. Another quarter is in approximately 13 or 14 million employees in 45,000 companies that employ between 100 and 500. Another quarter is in companies that employ between 20 and 100 emplovees, another 14 million. With a balance of approximately 13 million in establishments that employ under 20 people.

What we have suggested is that our present system of economic stimulus incentives, what have you, is out of balance if you take a look at who benefits from the investment tax credit. Our quarrel is not with the tax credit as such. It is with the fact that it is not graduated, and

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