Small Business and Jobs
What the Left has said:
The Affordable Care Act –
- provides tax credits of up to 35% of the amount they pay in insurance premiums.
- increases this tax credit in 2014 to up to 50% of premiums.
- allows small businesses to purchase insurance through competitive exchanges in 2014.
But here’s the truth:
- The tax credits available through ObamaCare are a bait-and-switch.
- Continually rising health insurance costs hurt (especially small) businesses.
- New taxes in the law will burden (especially small) businesses.
- ObamaCare encourages employers to drop health benefits.
- The statewide exchanges will not be “competitive.”
- ObamaCare destroys jobs.
Ask the Experts:
- Michael D. Tanner, Senior Fellow at the Cato Institute
- Dr. Robert F. Graboyes, Analyst for the National Federation of Independent Business
- John Ligon, Policy Analyst, Center for Data Analysis , The Heritage Foundation
- Hadley Heath, Policy Analyst at the Independent Women’s Forum
The tax credits available through ObamaCare are a bait-and-switch that will actually encourage small businesses to stay small, not to attempt to grow and expand. (1) Furthermore, the CBO recently stated in their latest update on ObamaCare's costs, that the expected aggregate claims for this tax credit will be around $21 billion, not $41 billion (2) as in the original CBO estimate, indicating that far fewer businesses are taking advantage of this complex and hard-to-access credit.
The tax credit of up to 35% of premiums is available now to small businesses with up to 25 employees paying average annual wages below $50,000, if they can figure out how to get it. In 2014, the tax credit will rise to 50% of premiums for qualifying businesses. (3) As these businesses grow, add more employees, become more productive and employees’ salaries go up, they will qualify for less and less of a tax credit:
Using insurance premium cost projections supplied by the nonpartisan Congressional Budget Office (CBO), studies have shown that the credit reaches its optimal point at 13 workers, with relief peaking at $36,400 for qualifying business.
For employers with 15 workers, taking on an additional hire will reduce the credit by $1,400. For a company looking to expand from 20 to 21 workers, the credit will shrink by $3,733. And businesses will take a $5,600 reduction on the credit when hiring the 25th worker. (1)
The incentive the tax credit provides for small businesses is for them to stay at the size they are and to keep wages low to keep the higher tax credit.
The tax credits available through ObamaCare will not incentivize much, — neither business expansion and hiring or employer-provided health coverage — because they expire in 2016. (4) With this looming expiration date for these tax credits, businesses will have to make the math work on providing health coverage without the inclusion of the tax credits.
Dr. Robert F. Graboyes of the National Federation of Independent Business explains that small businesses struggled before ObamaCare to manage health insurance costs (5):
"They pay 18 percent more than large firms for the same coverage. Their cost increases are volatile and they and their employees have fewer insurance choices than larger businesses.
"Typically, small firms that can afford to provide insurance do so, and those that don’t offer insurance can’t because it’s unaffordable. People become small-business owners in part so they can make their own decisions and control their own destinies. Health insurance frustrates small business owners because it’s the one cost they have virtually no power to control."
ObamaCare will only cause health insurance premiums to continue to rise by imposing new mandates on insurers, employers and individuals. Small businesses already face costly mandates at the state level, so ObamaCare’s new federal mandates will hurt them doubly.(6)
American businesses already spend valuable time and resources on compliance with the IRS code. The changes in ObamaCare will create even bigger tax headaches for small businesses.
Grover Norquist, president of Americans for Tax Reform, has detailed how four new taxes in ObamaCare will be particularly painful for small businesses.(2) They are:
- The Medicare payroll tax hike
- 3.8 percent tax on "investment income" (small business profits)
- The employer mandate tax penalty
- The individual mandate tax penalty (would apply to the self-employed)
When the law was originally passed, it included a requirement that businesses file a Form 1099 on every payment of $600 or more (whether it was to another business or an individual person). This paperwork burden was so nightmarish that when the business community fought back against it, Congress repealed the 1099 provision, and President Obama signed off on the repeal in April 2011.(7)
Employers with 50 or more workers will face fines if they do not comply with the employer mandate and provide health insurance benefits. But there are no such fines for small businesses. While most small employers provide insurance today (absent a government mandate), many small employers will choose to stop offering health benefits when the price of health insurance continues to increase dramatically due to ObamaCare's many mandates.
But many large employers will drop coverage as well, because the penalty they will pay (about $2,000 per worker per year) will be much more affordable for them than the cost of insurance.(8)
In fact, a major employer survey has indicated that 30 percent (9) of employers will probably or definitely drop coverage in 2014 when ObamaCare's mandates kick in.
If employers drop their workers, those workers can buy health insurance from the statewide exchanges established by ObamaCare. These exchanges will be subsidized with tax money, but will still be costly:
Any insurance policy sold on a statewide exchange to individuals or employees of small firms must meet “minimum essential requirements” and must be approved and rated by the federal government. This over-regulation of the insurance market will drive up costs, not lower them. Michael D. Tanner wrote for Cato, (10) “One should be skeptical of claims that the exchange will reduce premiums. In Massachusetts, supporters of the “Connector” claimed that it would reduce premiums for individual insurance policies by 25 to 40 percent. Instead, premiums for policies sold through the Connector have been rising, up 11 percent for the lowest cost plans since the program began.”
Under ObamaCare in 2014, employers of more than 50 workers will be required to provide insurance for their workers or face a penalty per worker of at least $2,000 a year. The increasing cost of health care benefits (or the alternative penalties) do not bode well for Americans who are employed by firms who will be affected. Michael D. Tanner of the Cato Institute explains (10)
“While it might be politically appealing to claim that business will bear the new tax burden, nearly all economists see it quite differently. The amount of compensation a worker receives is a function of his or her productivity. The employer is generally indifferent to the composition of that compensation. It can be in the form of wages, benefits, or taxes. What really matters is the total cost of hiring that worker. Mandating an increase in the cost of hiring a worker by adding a new payroll tax does nothing to increase that worker’s productivity. Employers will therefore seek ways to offset the added cost by raising prices (the least likely solution in a competitive market), lowering wages, reducing future wage increases, reducing other benefits (such as pensions), cutting back on hiring, laying off current workers, shifting workers from full-time to part-time, or outsourcing.”
According to Congressional Budget Office Director Doug Elmendorf, the tax increases and increased costs in ObamaCare could cause the loss of 800,000 jobs. (11)