I understand what you're saying but realisticly how many businesses are going to come forward and claim workers so that they can pay these payroll taxes, which will cost them countless $ they do not currently have to pay? I just don't see any way there can be adequate enforcement of such an initiative and I'd be amazed that anyone would come forward to acknowledge they've been breaking federal tax laws all along.
They won't. The idea is to provide an incentive to Mexicans who want to work here to do it legally. This means they would have recourse to complain about not getting SS or min. wage or others rights granted domestic workers. This means business will no longer have a co-conspirator in crime which would force a lot of them to pay taxes. And of course this should make American workers more competitive w/Mexicans.
Of course, the whole idea can be miserable failure but even if it is I can't see how the situation could get worse.