Friday, August 27, 2010

Business Week: “Small Businesses Skip the Tax Credit”

Business Week has an article this morning highlighting the ineffectiveness of the small business tax credit in actually helping companies afford health coverage.  The article interviews one small business owner with only 15 workers who doesn’t qualify for the credit, because his workers’ average salary is too high – a recipe for wage deflation if there ever was one.  And therein lies the problem with the credit:

The response has been tepid, according to insurance brokers who sell small-group policies. The reason, they argue, is that the credit starts to phase out for companies that pay average annual wages of more than $25,000 or employ more than 25 workers. The value of the benefit declines quickly, so many business owners in high-cost states get no tax break, and those elsewhere often say the credit is too small to make much of a difference.

As the article notes, the small business credit is limited in its amount.  Just as important, the law also limits its duration, meaning that firms will need to absorb the full brunt of premium costs in relatively short order.  But the law contains dozens of mandates to be implemented over the next several years, each of which could raise premium costs by 1-3 percent.  Who then would want to take on new health care costs – or even continue to offer coverage – knowing that the meager small business credit will soon expire, and a mountain of premium-raising federal mandates loom on the horizon in its stead?

Democrats advertised the small business tax credit as one of the “immediate deliverables” promised by the law – but this morning’s article confirms that its poor structure means it will prove much less effective than advertised.  Moreover, while Democrats attempt to re-direct focus on to a relatively paltry tax credit, American businesses, just like American workers, are already seeing the adverse effects of Democrats’ unpopular law emerge before their eyes.