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Thursday, November 05, 2009

Small Biz Health Care Daily: The Small Business Tax Credit Head Fake

President Obama and congressional leaders have been working hard to sell the idea that big government health care reform will somehow be good for small business. In particular, more government mandates, regulation, spending and taxing are supposed to lead to reduced costs for overburdened businesses.

On October 29, for example, the President declared the following to business owners: “What we will do is make the coverage that you're currently providing more affordable by offering a tax credit to small businesses that are trying to do the right thing and provide coverage for their employees. Under the House and Senate bills, millions of small businesses would be eligible for a tax credit of up to 50 percent of their premiums. That's in the legislation that's already been proposed.”

Sound too good to be true? Well, of course, it is.

First, this tax credit is limited to two years for any business. So much for any substantive, permanent reductions in cost.

Second, the credit is applicable to employers paying average compensation of $20,000 a year, and phased out for average incomes up to $40,000. Above that level, no credit is available.

Third, the credit is limited to firms with only 10 or fewer employees, and then being phased down up to 25 employees. No credit would be available beyond that level.

This is a temporary, highly targeted tax credit that amounts to nothing substantive for small businesses and for making health care more affordable. Instead, it’s a political head fake – a political move that simply tries to fool some small business owners into supporting this costly, misguided legislation.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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