The Obama administration Monday unveiled a tax cut for small companies that provide health insurance, but business groups gave it a mixed review: Many small businesses won’t qualify for the tax credit, they say.
According to a new study, ObamaCare provides disincentives for businesses to hire new workers and provides incentives to invest in capital rather than in labor — since, for example, hiring a 25th worker would cost a business $5,600, in addition to wages and benefits.
Amidst all of the various mandates and costs that ObamaCare would impose on small businesses, the administration claims that the overhauls’ small-business tax credit would be a great benefit for companies with less than 25 employees and average wages under $50,000 — but the reality is that the tax credit would shrink sharply once a company gets above just 10 workers or $25,000 in average annual wages.
A new study by a former head of the Congressional Budget Office says that ObamaCare would make dropping employees’ insurance the sensible choice for the employers of up to 35 million workers — with the workers’ concurrence. These workers would flood into the government-run exchanges, which would then cost about $1 trillion more than projected over the next decade — essentially doubling ObamaCare’s published price and leading to massive new debt. Once in the exchanges, workers would find that their upward economic mobility would be strongly limited by the exchanges’ extremely high effective marginal tax-rates.
Hidden provisions in the health law will create new costs for employers.
As this slide-show depicts, subsidies provided through ObamaCare for lower- and middle-class workers who receive health-care through the government-run exchanges would be much greater than the tax-breaks provided to lower- or middle-class workers who receive employer-provided health insurance. This would lead employers to drop these workers’ insurance and let them be covered through the exchanges, at taxpayer expense. Thus, ObamaCare is not only a new health-care system but a new welfare and tax system, which would lead to the segregation of the labor market: upper-income workers would continue to get insurance through their employers; lower- and middle-class workers would eventually get it through the government.
ObamaCare would impose higher implicit marginal tax-rates on lower- and middle-class workers than on millionaires, thereby penalizing work and providing a barrier to upward mobility. Under the Senate bill (which, along with the Reconciliation Act, became law) those making $14,560, who make another $560, would be $200 worse off than if they hadn’t made that extra money at all; those making $12,000 would pay implicit marginal tax-rates of 66 percent on the next $5,000 earned; and people who make between $30,000 and $100,000 would pay implicit marginal tax rates of over 50 percent. Disincentives for work would be coupled with rewards for dropping insurance, as those who drop insurance, picking it up again only when sick or injured, could save as much as $8,000 a year.
Under Obamacare, getting married would cause couples to lose large amounts in insurance exchange subsidies. Depending on their ages and incomes, married couples would lose up to three-quarters of their exchange subsidies and up $10,425 a year that would be available to couples who simply live together.