The tax credit included in President Obama’s health care law may be too small and too temporary to encourage small business owners to insure their employees, according to industry representatives.
The complex rules for the credit create a barrier to small businesses using it, and some conclude the cost of preparing the return would be larger than the credit they’d receive, says Robert F. Graboyes, senior healthcare advisor at the National Federation of Independent Business (NFIB).
“We said early on that we had no principled opposition to some kind of credit, but they were creating a highly complex one that was going to do very little good for a relatively few firms. I stress that we always tell very small businesses with low wages, ‘Check into it. If it’s good for you, take it,’” Graboyes said.
Graboyes said the Obama administration failed to live up to what they told small business representatives during the legislative battle.
“We were told incessantly,” Graboyes said, “that this was the greatest thing, and this was going to spur businesses to offer insurance; that it was great, that it would really make the whole law a wonderful thing for small businesses. And we always said ‘Look, we’re not opposed to credits, but we think this one is rather insignificant. It’s short-lived. It’s only going to help a relatively small number of firms.’ And we got criticized for our criticism.”
Backers of Obama’s law promised up to 4.4 million businesses would benefit from the small-business tax credit, Garboyes said.
“[Even] our most pessimistic view of it turns out to have been an overestimate,” Graboyes said. “We looked at the numbers and said, ‘There is no way on Earth it could be more than 2 million, and probably not more than 1 million.’ It turns out that 308,000 got it, and it seems they got a fairly trivial amount.”
“Excessive Complexity, Stinginess”
Dean Clancy, vice president for health care policy at FreedomWorks, echoes Graboyes’ views.
“When ObamaCare was pending, we mocked the small-business tax credit for excessive complexity and stinginess. And the low take-up and high error rate on the applications suggest we were right,” Clancy said.
Jeffrey Anderson, a senior fellow in health care studies at the Pacific Research Institute, put the Small Business Tax Credit in context of the wider deleterious effects of the health insurance law.
“From an employment perspective, the incentives in Obamacare are perverse,” Anderson said. “Obamacare offers significant financial incentives for employers to avoid passing certain thresholds of employment and to avoid raising employees' wages. Under Obamacare, the fewer employees you have, and the lower their wages, the more tax breaks you'll get and the fewer mandates you'll face.
“For example, to get the full tax credit under Obamacare, you can't have more than ten workers or pay them more than $25,000 in average annual wages. To get any tax credit at all, you can't have more than 25 workers,” Anderson added.
Few Stand to Benefit
Anderson says he is hard-pressed to find a way small businesses will benefit under Obama’s law. He points out if the law were a good thing by simple mathematics for small businesses, “the U.S. Chamber of Commerce and the NFIB wouldn't both publicly support its repeal.
“The basic effect of ObamaCare, I think, will be to cause most smaller employers (up to 100 or even up to 500 employees) to get out of the business of offering health benefits. Those workers will end up in the exchanges or on Medicaid or uninsured. I am skeptical this particular credit will have much effect either way, because of the low take-up,” he added.
There is a small silver lining, Graboyes notes.
“At least the federal deficit won’t be quite as bad, since they’re not spending as much as the CBO thought they were going to spend on the tax credit,” Graboyes said. “But that’s not much of a silver lining for American small businesses facing rising health care costs.”