The Hill: ObamaCare tax credits discourage hiring

Gee, who would have guessed it?  Actually, this point has been repeatedly made here and elsewhere — that the tax credits for small businesses in ObamaCare not only won’t expand coverage, but will actively slow hiring and business growth.  It’s still good to see confirmation from other sources:

A study by the National Center for Policy Analysis shows that tax credits in the new healthcare law could negatively impact small-business hiring decisions.

The new law provides a 50 percent tax credit to companies offering health coverage that have fewer than 10 workers who, on average, earn $25,000 a year. The tax credit is reduced as more employees are added to the payroll. …

Using insurance premium cost projections supplied by the nonpartisan Congressional Budget Office (CBO), the study states that the credit reaches its optimal point at 13 workers, with relief peaking at $36,400 for qualifying business.

After the 13th worker the economics surrounding the credit change, the study says.

For employers with 15 workers, taking on an additional hire will reduce the credit by $1,400. For a company looking to expand from 20 to 21 workers, the credit will shrink by $3,733. And businesses will take a $5,600 reduction on the credit when hiring the 25th worker.

The credit phases out for companies with at least 26 employees.

The real issue is that these tax credits won’t incentivize either hiring or employer-provided health coverage, and for one good reason — they’re only good for a couple of years:

The tax credits are available to businesses until 2016, two years after the healthcare exchanges are up and running. In 2016, of the 159 million Americans that participate in employer-sponsored health plans, only 3 million will be eligible for the tax credits provided to their employer, the CBO predicts.

Small businesses running on thin margins won’t suddenly decide to buy health insurance for their employees just to get a tax credit for a couple of years.  The expiration of the credit means that the expenditure on health insurance has to make sense without the tax credits.  If it made sense without the credits, most small businesses would already have provided it to their employees.  Furthermore, the credit itself doesn’t come close to covering the cost of health insurance even while in effect, nor do other small-business tax credits offered by the Obama administration cover the cost of hiring new personnel.

These tax credits will only apply to those businesses that already offer health insurance as part of their attempt to compete for labor in the market.  The expiration of the credit and the establishment of federally-subsidized state health insurance exchanges will incentivize these employers to abandon its provision of health insurance to its employees.  Most of these will pay no fines for dumping employees out of their plans, and since other employers will likely be doing the same thing, they won’t have to worry about competition any longer in benefits options.

Barack Obama and the Democrats in Congress clearly have little understanding of real-world economics.  If any of them had run a business, or perhaps just worked for a while in the private sector, they would have understood that the incentives included in ObamaCare actually reward the opposite behavior they intended.

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