Research Briefing

ObamaCare Burdens Small Businesses With Job-Killing Taxes, Regulations

THIS WEEK IS SMALL BUSINESS WEEK: "I, Barack Obama... do hereby proclaim May 23 through May 29, 2010, as Small Business Week." (President Barack Obama, "Presidential Proclamation-Small Business Week," Press Release, 5/20/10)

YET OBAMA’S SIGNATURE ACHIEVEMENT WILL CRUSH SMALL BUSINESSES

Obama Pays For His Government Takeover Of Health Care With Nearly $570 Billion In Job-Killing Taxes On Small Businesses, Investments And Innovation. (Douglas W. Elmendorf, Letter to Speaker Nancy Pelosi, 3/18/10)

• Which Could Cause 690,000 Net Job Losses. “The dynamic analysis shows that this bill would result in 690,000 net job losses, many of which would be in the health services industry. These losses represent both cutbacks in jobs and jobs that are simply never created as talented individuals choose to specialize in other industries that are not subject to the government’s payment squeezes.’” (Karen A. Campbell, et. al., “Mandates And Taxes Re-Burden Health Insurance Markets,” Heritage Foundation Web Memo, 3/16/10)
• And Cause “The Economy To Produce $752 Billion Less Worth Of Goods And Services.” “The bill’s taxes, penalties, and fees on investors and businesses would decrease the amount of investment in the economy. This reduced investment would in turn lead to a decline in productivity, causing the economy to produce $752 billion less worth of goods and services. A smaller economic pie would mean workers earn lower wages and salaries. Higher taxes on investment also put upward pressure on interest rates as investors seek to achieve their after-tax desired rate of return.” (Karen A. Campbell, et. al., “Mandates And Taxes Re-Burden Health Insurance Markets,” Heritage Foundation Web Memo, 3/16/10)

Obama’s $210 Billion Medicare Payroll Tax Hike Would Hit Many Small Business Owners. “The legislation would be paid for through a ... a payroll tax on the wealthy ...”; “In a 2007 survey, the National Federation of Independent Business found that about 15 percent of small-business owners -- and half of those with at least 20 employees -- said they expected their household income to exceed $200,000.” (Ricardo Alonso-Zaldivar, “Tempers Flare As Senate Debates Health Care,” The Associated Press, 12/2/09; Lori Montgomery and V. Dion Hayes, “Small Businesses Brace For Tax Battle,” The Washington Post, 4/27/09; “Estimated Revenue Effects Of The Manager’s Amendment To The Revenue Provisions Contained In The ‘Patient Protection And Affordable Care Act,” Joint Committee On Taxation Report, 3/20/10)

Lorain County, OH: The Threat Of Obama’s $20 Billion Medical Device Tax Caused Businesses To Stop Hiring. “[I]n the short run, some of his policies could cost existing jobs, especially health-care reform, if it is enacted. One of the few large businesses that has prospered in Lorain County in recent years has been Invacare, a maker of home medical devices … The company has 1,300 employees in Lorain County but has stopped hiring in anticipation of a tax on medical devices that was proposed to help pay for the president’s health-care reform plan.” (Michael A. Fletcher, “Assessing Obama’s Promises Of Jobs In A Hub Of Manufacturing,” The Washington Post, 1/22/09; “Estimated Revenue Effects Of The Manager’s Amendment To The Revenue Provisions Contained In The ‘Patient Protection And Affordable Care Act,” Joint Committee On Taxation Report, 3/20/10)

Denver, CO: A Tanning Salon Owner Said ObamaCare’s $2.7 Billion Tanning Tax Might Drive Her Out Of Business. “‘Will I be here next year? I don’t know,’ said Kristi Alpers, owner of Cherry Creek Tans in Denver. The tax will add 90 cents to a few dollars for a single tanning session, depending on the machine. It’s a fee she thinks will bankrupt her.” (Kristen Wyatt & Ricardo Alonso-Zaldivar, “Tanning Bed Tax Worries Beleaguered Industry,” The Associated Press, 4/22/10; “Estimated Revenue Effects Of The Manager’s Amendment To The Revenue Provisions Contained In The ‘Patient Protection And Affordable Care Act,” Joint Committee On Taxation Report, 3/20/10)

INCREASES THE COST OF HEALTH CARE FOR SMALL BUSINESSES THAT ARE ALREADY ON THE BRINK OF COLLAPSE …

Small Businesses Already Pay More Than Large Businesses For The Same Health Care Plan. “Small businesses are at a particular disadvantage. A study … found that the smallest employers pay an average of 18 percent more than large businesses for the same health plan, because they don’t benefit from pooled risk the way a large business does, and administrative costs tend to be higher. This leads many small businesses to offer fewer benefits and pass on more of the cost to workers.” (Jenny Gold, “Some Small Businesses See Burden In ‘Cadillac’ Tax,” Kaiser Health News, 3/4/10)

Obama’s $32 Billion Tax On Health Insurance Would Hit Small Business Hardest. “Small employers would also probably be hit by the taxes ... small businesses tend to pay more for their insurance than bigger employers that can negotiate better premiums ... About 14 percent of small employers, counted as those with fewer than 500 workers, now offer policies that would be subject to the excise tax ... ‘That is a very heavy hammer on the cost of your premiums,’ said Donna Marshall, the executive director of the Colorado Business Group on Health ... ‘You don’t want to cause a chilling effect on the employers who are trying to do the right thing.’” (Reed Abelson, “A Proposed Tax On The Cadillac Insurance Plans May Also Hit The Chevys,” The New York Times, 9/20/09; “Estimated Revenue Effects Of The Manager’s Amendment To The Revenue Provisions Contained In The ‘Patient Protection And Affordable Care Act,” Joint Committee On Taxation Report, 3/20/10)

Cumming, GA: Small Business Owner Said The Cost Of Health Insurance Is “The Difference Between Success And Failure.” “Ellen Warner and her husband Mark run a small online store out of the basement of their home in Cumming, Ga., a suburb of Atlanta. … Warner says the high cost of health insurance coverage ‘means that instead of making a profit last year, we lost money. It means the difference between success and failure in a business.’” (Jenny Gold, “Some Small Businesses See Burden In ‘Cadillac’ Tax,” Kaiser Health News, 3/4/10)

CREATES AN AVALANCHE OF NEW PAPERWORK…

ObamaCare Will “Swamp U.S. Businesses With A Flood Of New Tax Paperwork” By “Radically Alter[ing] The Nature Of 1099s.” “An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork. … The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.” (Neil deMause, “Health Care Law's Massive, Hidden Tax Change,” CNNMoney.com, 5/5/10)

Starting In 2012, Companies Will Have To Send 1099s To Contract Workers, Individuals, And Corporations If They “Buy More Than $600 In Goods Or Services [From Them] In A Tax Year.”  “Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year. … But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.” (Neil deMause, “Health Care Law's Massive, Hidden Tax Change,” CNNMoney.com, 5/5/10)

“‘It's A Pretty Heavy Administrative Burden,’ Particularly For Small Businesses Without Large In-House Accounting Staffs, Says Bill Rys, Tax Counsel For The National Federation Of Independent Businesses.” (Neil deMause, “Health Care Law's Massive, Hidden Tax Change,” CNNMoney.com, 5/5/10)

AND OBAMACARE’S SMALL BUSINESS TAX CREDIT DOESN’T HELP ALL SMALL BUSINESSES, DISCOURAGES EXPANSION

ObamaCare’s Small Business Tax Credit’s Much-Touted “Broad Eligibility” Falls Short As It “Drops Off Sharply Once A Company Gets Above 10 Workers And $25,000 Average Annual Wages.” “When the administration unveiled the small business tax credit earlier this week, officials touted its ‘broad eligibility’ for companies with fewer than 25 workers and average annual wages under $50,000 that provide health coverage. … Lost in the fine print: The credit drops off sharply once a company gets above 10 workers and $25,000 average annual wages.” (Ricardo Alonso-Zaldivar, “FACT CHECK: Tax Cut Math Doesn't Add Up For Some,” The Associated Press, 5/20/10)

• Springfield, IL: Small Business Owner Says He’d Have To Cut Jobs, Slash Wages To Benefit From The Credit. “To get the most out of the new federal credit, Hoffman said he'd have to cut his work force to 10 employees and slash their wages. ‘That seems like a strange outcome, given we've got 10 percent unemployment,’ he said.” (Ricardo Alonso-Zaldivar, “FACT CHECK: Tax Cut Math Doesn't Add Up For Some,” The Associated Press, 5/20/10)

National Center For Policy Analysis (NCPA) Study Finds ObamaCare’s Small Business Tax Credit “Could Negatively Impact Small-Business Hiring Decisions.” “A study by the National Center for Policy Analysis shows that tax credits in the new healthcare law could negatively impact small-business hiring decisions. The new law provides a 50 percent tax credit to companies offering health coverage that have fewer than 10 workers who, on average, earn $25,000 a year. The tax credit is reduced as more employees are added to the payroll. The NCPA study finds the reduction in tax relief to be a cost concern for companies looking to hire additional workers, but operate on slim profit margin yet still provide employee health coverage.” (Jay Heflin, “Report: Healthcare Law Tax Credits Encourage Small Businesses To Stay Small, Not Hire,” The Hill’s “On The Money” Blog, 5/23/10)

• NCPA Study Co-Author Pamela Villarreal Says Businesses Operating “At The Margins” Will Have To Make Tough Hiring Decisions Because “They’re Going To Have To Absorb The Cost Of Losing The Tax Credit.” “You wouldn’t think this would have an impact, but at the margins, when they [business owners] decide to hire an extra worker, they’re not only going to be paying that worker’s salary, they’re going to have to absorb the cost of losing the tax credit…” (Jay Heflin, “Report: Healthcare Law Tax Credits Encourage Small Businesses To Stay Small, Not Hire,” The Hill’s “On The Money” Blog, 5/23/10)
• Villarreal: “If A Business Can Make A Decision To Substitute Capital For Labor – Say, Contract The Procedure Out Or Automate It – I Believe [Losing The Tax Credit] Will Play An Important Part In The Reluctance To Hire…” (Jay Heflin, “Report: Healthcare Law Tax Credits Encourage Small Businesses To Stay Small, Not Hire,” The Hill’s “On The Money” Blog, 5/23/10)