Tags: Barack Obama | Healthcare Reform | healthcare | jobs | Obama | tax credits

GOP's Price: Healthcare Foils Job Creation Again

Tuesday, 25 May 2010 04:10 PM

By John Rossomando

A new study claiming that President Obama’s healthcare law could discourage small businesses from hiring is another indicator that the administration’s policies penalize job creation, says Rep. Tom Price, R-Ga.

“The healthcare bill was one of the latest opportunities they had to punish job creators,” says Price, a key GOP point man on healthcare reform.

Price was reacting during a Newsmax interview to a study from the National Center for Policy Analysis  that healthcare law offers to help small businesses buy coverage actually could deter them from hiring.

The “arbitrary” reduction in the amount of the tax credits as companies grow could deter them from adding more workers or raising salaries, the study says.

Companies with at least 25 workers would be eligible for a 35 percent tax credit for employees’ health coverage from this year until 2014 when health insurance exchanges go into effect.

Starting in 2014, employers will be eligible for a 50 percent tax credit on their employees’ health insurance for two years if they pay half the cost. In order to qualify, they will be required to buy their policies from the insurance exchanges. And businesses with 10 workers or less, earning up to $25,000 would be eligible for a full tax credit.

“The problem is that, when you get used to having that benefit and then a few years down the road you want to expand your business . . . you are going to start losing that tax credit,” says Pamela Villarreal, one of the study’s authors.

The credit peaks in its effectiveness once a company has 13 workers.

Consequently, the study says that, if the addition of another higher-paid worker such as a supervisor were to raise the firm’s average wage to $27,500, the total tax credit would fall from $36,400 to $32,760. The net result would be a $3,600 marginal cost, which would increase as a firm’s average wage increases above the $25,000 level.

According to the study, the marginal cost of adding a higher-paid worker such as a supervisor could hit as much as $23,660 if it were to increase a firm’s average pay 50 percent above the $25,000 threshold.

“This also assumes companies are going to be paying the family costs, which the CBO estimates at $15,000,” Villareal tells Newsmax. “This is more than just about salary and benefits because they will have to decide whether they want to hire that additional employee and lose this part of the tax credit or if they just want to outsource that job.”

The tax credit could encourage businesses to hold their salaries down or not bring in the higher-paid worker, she says.

“The problem is this really is a perverse incentive. It doesn’t reward businesses for growing,” Villarreal says.

The tax benefit of adding more than 13 workers declines progressively until a firm has more than 50 workers and the credit disappears.

Not everyone agrees with the study’s conclusions.

The credit’s two- or three-year duration means it probably will not have much of a long-term impact, says Ryan Ellis, tax policy director with Americans for Tax Reform.

“I am hesitant to say a small business will make the determination to hire or not to hire based on the tax credit,” Ellis says. “It’s a very small period for a tax credit, and I don’t think it’s a tax credit that a lot of businesses are going to be taking advantage of.”

Meanwhile, Georgia Rep. Price said Republicans would make alleviating some of the pressures the healthcare law has imposed on job creation a priority if they regain control of Congress.

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