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Friday, October 30, 2009

Small Biz Health Care Daily: House Health Care Bill and Entrepreneurship

There is so much egregiously wrong with the health care package presented by Democrats in the U.S. House of Representatives on October 29 that it’s hard to figure out where to start.

Let’s begin with taxes that will hurt small businesses and entrepreneurship.

The House measure, of course, would amount to a massive expansion in the size of government. Estimates put the ten-year cost at more than a trillion dollars. As always happens with government health care programs like this, the reality will turn out to multiple times more costly.

At the start with these rosy cost guess-timates, the tax increases are large. Those include the following:

• A 5.4 percent surtax on incomes about $500,000 a year for individuals, and $1 million for married filers. That would jack up the top income tax rate to 45% if Congress and the Obama White House carry through on their pledge to increase the top tax rate next year from 35% to 39.6%. These higher tax rates will discourage and reduce the resources available for investing in and building businesses.

• The “play or pay” mandate would impose a new payroll tax on businesses that do not offer health insurance coverage for employees. The tax would start at 2% of payroll for firms with a minimum of $500,000 in annual payrolls, and increase to 8% for firms with more than $750,000 in payrolls. This mandate does not change the economic reality of businesses being forced to provide insurance or pay a new tax. Therefore, it means increased labor or payroll tax costs, which translate into reduced job creation.

• The bill’s individual mandate for health insurance coverage features as much as a 2.5% tax on income if a person does not have coverage. That, of course, would be a costly blow for many self-employed individuals.

If the House Democrats are looking to make the environment for entrepreneurship, investment and job creation far more hostile and costly, then they have accomplished their goal.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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