Immigration and Employers

In case you missed it, read a July 16 Wall Street Journal editorial titled “Blame the Employers.”

The piece noted that the Obama administration is now following the misguided Bush administration’s blame-the-employer policies regarding immigration enforcement. The editorial highlights the problems with the government’s E-Verify system/database to verify the legal status of workers, and the fact that E-Verify cannot catch identity fraud.

And as for the proposal to go to a national biometric ID card, the Journal asks: “But if national ID cards are the silver bullet, why does Europe have so many illegal immigrants despite ID systems that have been in place for decades?”

The Journal correctly concludes: “The broader issue is that the Obama Administration, like its predecessor, has accepted the premise that the key to curbing illegal immigration is a crackdown on employers. That premise is false. Our illegal workforce results from a government policy that severely limits foreign access to U.S. labor markets… What U.S. employers need is legal access to willing workers, not more red tape in the form of a federal worker-verification system.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Something for Nothing?

Something for nothing is a nice dream. But in the real world economy, it doesn’t happen too often. Instead, reality dictates in the marketplace that you get what you pay for.

Nonetheless, some retail businesses want a valuable service – that is, the ability for their customers to use credit and debit cards to make purchases – but they don’t like the price of this service. So, these businesses, who would fight tooth and nail to stop the government from dictating what prices they could charge, are looking for government, whether through the courts or legislation, to set the price paid for the enormous benefits that both consumers and these businesses derive from credit and debit card usage.

Consider a few points from July 16 New York Times report on the issue:

• “Merchants across the nation, from powerhouses like Wal-Mart and Home Depot, to gas stations, mom-and-pop restaurants and 7-Eleven, have spent years unsuccessfully fighting the biggest of these costs, known as an interchange fee, which generates an estimated $40 billion to $50 billion in income annually for banks that issue credit cards… Legislation is winding its way through Congress, a government audit has been ordered and petitions are surfacing in hundreds of convenience stores, including Ms. Orzano’s 7-Eleven, encouraging customers to voice their opposition to the fees.”

• “But retailers may have a tough time convincing Congress that consumers would benefit if the effective interchange rate, which has increased slightly in recent years, is dialed back. Many other countries, including Israel and Australia, have required banks that issue cards to reduce the fee. Yet there is little evidence that the savings were passed along. In Australia, where regulators required banks to cut the interchange rate for Visa and MasterCard purchases to 0.5 percent from 0.95 percent, the banks offset their loss by reducing rewards programs and raising annual fees, according to a 2008 report by the Government Accountability Office.”

• “Banks say they incur substantial risk when offering credit cards, and must make enough of a return to continue to extend credit. Reducing interchange fees would cut profit at both the largest and smallest financial institutions, including community banks and credit unions, Mr. Clayton said.”

• “Still, while legislation on interchange fees would not have stood a chance a few years ago when the economy was buoyant and banks were not under the political spotlight, the winds on Capitol Hill have shifted as public anger at banks — and credit card companies — has grown.”

Businesses understandably want to cut costs, but perhaps they need to look at the bigger picture, including the negative consequences when government in effect sets prices. It means less innovation, less investment, and reduced availability of credit.

Checking out SBE Council’s recent report titled “Credit Cards and Small Business” would help.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Dems Health Care Bill a Bad Deal for Small Business

The health care plan proposed by House Democrats on July 15 would punish small business owners who are already struggling under harsh economic conditions. It will do little to make health insurance more affordable. The content of the bill -- called “America’s Affordable Health Choices Act" -- is not truthfully represented by its title. The $1 trillion-plus plan will accelerate job loss and business closures as the employer mandates and excessive taxes and penalties make it financially unfeasible for many firms to compete.

It’s seems rather extraordinary that House Democrats are moving forward with this scheme. Either they are dreadfully out-of-touch, or just plain contemptuous of small business owners. Many small businesses are struggling to access and keep health insurance on top of juggling other financial pressures. Imposing taxes and a costly mandate, as the Democrat plan proposes, during a period when businesses are already cutting jobs and investment is economically foolish.

The 1,000-plus page Democrat plan includes:

• Employer Mandates: Requires employers to provide insurance or pay a penalty for not doing so. Businesses with more than $500,000 in revenues would pay a penalty of 8% of payroll. There is a graduated penalty for firms falling between $250,000 to $500,000 in revenues with business with less than $250,000 exempt from the mandate. (The graduated rates are 2% of payroll for employers with payrolls above $250,000 to $300,000; 4% for employers with payrolls above $300,000 to $350,000; and 6% for employers with payrolls above $350,000 to $400,000.)

• An individual Mandate: Individuals and the self-employed are required to buy health insurance or pay a financial penalty, which would be 2.5 percent of income.

• Higher Taxes: A surtax would be imposed on higher-income individuals – many of which are small business owners. Individuals earning $280,000 and couples earning $350,000 would get hit with a 1% tax; those making $500,000-$1,000,000 would be taxed 1.5%; and couples earning more than $1 million would pay a 5.4% tax. These tax rates would increase if certain targets are not met.

• Government Health Insurance: A government-run health care plan is established. Such an option would undermine private insurance, diminish choice in the marketplace and ultimately drive insurance rates higher. Small businesses and individuals could be taxed more to keep up with the higher costs associated with non-competitive, government-run health care.

As large, complex and costly as the bill appears, House Democrats plan to begin markup in the Education and Labor Committee as early as July 15. The House Ways and Means Committee plans to begin markup on July 16. House Democrat leaders say they want a bill passed before the August recess and the legislative process will move rapidly.

The rush to pass this bill without allowing a full examination of it consequences is negligent. The economic consequences of this legislation are significant, including its impact on the small business sector and the future of U.S. entrepreneurship. Small business owners certainly want action on reforms that bring them affordable health coverage, but putting the cost burden for financing this government-run system almost exclusively on their backs is unjust.

Karen Kerrigan
President & CEO

Massachusetts Care: Whoops

With its individual health insurance mandate, “play-or-pay” mandate on businesses (either provide employees health insurance or pay a tax), and expanded government funding, Massachusetts’ health care package passed in 2006 has been something of a model for those advocating more government involvement in health care at the national level.

But now comes the following news, as reported in the July 15 New York Times:

The new state budget in Massachusetts eliminates health care coverage for some 30,000 legal immigrants to help close a growing deficit, reversing progress toward universal coverage just as Congress looks to the state as a model for overhauling the nation’s health care system. The affected immigrants, permanent residents who have had green cards for less than five years, are now covered under Commonwealth Care, a subsidized insurance program for low-income residents that is central to the groundbreaking health care law enacted here in 2006…

In addition to dropping the immigrant insurance program, Commonwealth Care will save an estimated $63 million by no longer automatically enrolling low-income residents who fail to enroll themselves.

What can be said? Whoops.

Maybe more government involvement in health care – including mandates and more spending – isn’t such great ideas after all.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Not-So-Happy Energy Anniversary

Anniversaries can be funny things. Some carry true meaning; others not so much. And there are times when anniversaries provide a reminder of unfulfilled promise.

That last case applies to the one-year anniversary today that was noted by Mark Tapscott, editorial page editor of The Washington Examiner. Tapscott wrote:

Tuesday is the one-year anniversary of President Bush lifting the executive branch ban on oil and natural gas exploration and production from the Outer Continental Shelf (OCS) off the U.S. coastline…

Not much has happened in the year since Bush acted, thanks to the Obama administration's Interior Secretary, Ken Salazar, the President's allies in the environmental movement, and congressional Democrats like House Speaker Nancy Pelosi who appear determined to stop all energy production in the U.S. that doesn't involve windmills or solar panels…

Salazar is slow-walking the OCS process, a federal panel has put the existing OCS/western lands bidding on hold pending court challenges, and the Obama White House is pushing the Waxman-Markey cap-and-trade anti-global warming bill that will further suffocate domestic energy exploration, production and innovation.

Tapscott’s entire piece should be read. It is depressing and right on target.

The Bush administration certainly can be faulted for waiting so long to take this important step last year. But the Obama administration and current Congress, as Tapscott correctly noted, are explicitly hostile to fossil fuel energy exploration and development, and our economy is paying and will pay for the foreseeable future a heavy price for such blind ideology.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council