Obamacare small business tax credit falling just a little short of expectations

posted at 12:01 pm on May 22, 2012 by Morgen Richmond

Throughout the debate over ObamaCare, proponents of the bill touted over and over again a provision they claimed would help millions of small businesses, by providing a tax credit to offset the cost of insuring their employees. The President repeatedly made this pitch himself and the White House web site still claims that 4 million small businesses are eligible for this tax credit. Based on a new report from the GAO, they are going to need to revise this number down just a bit (via The Hill):

Fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million. The cost of credits claimed was $468 million. Most claims were limited to partial rather than full percentage credits (35 percent for small businesses) because of the average wage or full-time equivalent (FTE) requirements. 28,100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.

One factor limiting the credit’s use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.

If the quality of the Administration’s economic analysis hadn’t already proven to be nearly worthless the discrepancy here would be stunning. With only 170K small businesses benefiting from this tax credit, that’s barely 4% of the number touted by the White House. They were off by over 95%!

While I suppose this is a good thing for those worried about the cost of ObamaCare, it’s yet another example of how the law was misrepresented to the public during the legislative process. Because the ineffectiveness of this tax credit would have been obvious to anyone with a small business background, or common sense for that matter. The problem is nicely illustrated by the table below from the GAO (click to enlarge). The law provides for a maximum tax credit of 35%, but only businesses with fewer than 10 employees and with an average wage of less than $25K per year are eligible for the full amount. The tax benefit scales down rapidly for larger businesses, or for business whose employees earn more on average.

The tax credit could have been the full 35% for all businesses in this chart and it wouldn’t have made much of a difference, except for businesses already providing insurance. And I’d wager that most of the 170K business claiming this credit already fall into this category. Because spending a dollar to save 35 cents is not a winning business proposition, especially in an economic climate where so many small businesses are struggling to get by. And small business owners aren’t stupid either. It’s not lost on them that this tax credit sunsets after a few years, while the cost of providing health insurance will only climb with all the coverage mandates included in ObamaCare.

This isn’t lost on larger businesses either and once government subsidies for the uninsured kick-in starting in 2014, expect more and more companies with low average wages to dump their employees on to the government-controlled insurances exchanges. With policies designed this poorly, some might wonder whether this was the intent all along.


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But…But…But… I still get to keep my doctor, right?

dirtseller on May 22, 2012 at 12:04 PM

With policies designed this poorly, some might wonder whether this was the intent all along.

Gee, ya think?

Christian Conservative on May 22, 2012 at 12:06 PM

Hopefully the SCOTUS will kill the whole damn thing next month, and this will all be moot.

AZCoyote on May 22, 2012 at 12:07 PM

If the quality of the Administration’s economic analysis hadn’t already proven to be nearly worthless the discrepancy here would be stunning

Par for the course.

derecho on May 22, 2012 at 12:10 PM

Looking at it another way, they inflated its popularity by 2500%

unclesmrgol on May 22, 2012 at 12:10 PM

Agent 86 Maxwell Smart spreads his arms and says, “Missed it by…that much!”

Let’s hope the door hits his nose this November!

Steve Z on May 22, 2012 at 12:10 PM

We can only hope that the Supreme Court kills the legislation in its tracks.

RedSoxNation on May 22, 2012 at 12:11 PM

More gov’t abject stupidity. Did they ever bother to run a demographic?

aniptofar on May 22, 2012 at 12:12 PM

expect more and more companies with low average wages to dump their employees on to the government-controlled insurances exchanges.

that’s the “Come to Jesus” moment that they’re hoping for.

think about it.

ted c on May 22, 2012 at 12:14 PM

Ummmm..YES! It was their intent.

Hellooooooooooo?

Flyboy on May 22, 2012 at 12:15 PM

Must be an error cause he is the smartest President ever…ask him and he will tell you..

hillsoftx on May 22, 2012 at 12:15 PM

Single Payer is the Goal. 0′s other goal, What small business? Small business, we don’t need no stinking small business.

Bmore on May 22, 2012 at 12:15 PM

It seems that the left has Chief Justice Roberts in their view to try to make him vote for bhocare? I feel these attacks will be coming up more often as the June vote come?

Please SC Justices, rule for our Republic and citizens.

http://online.wsj.com/article/SB10001424052702303610504577416710604278438.html
L

letget on May 22, 2012 at 12:15 PM

What did you expect from a man who never even managed a lemonade stand

Conservative4ev on May 22, 2012 at 12:16 PM

They were off by over 95%!

Yeah, but they’ve been consistent! Consistently WRONG!

GarandFan on May 22, 2012 at 12:18 PM

At least they were not 100% wrong….just 95%…

PatriotRider on May 22, 2012 at 12:20 PM

It’s a feature not a bug.

H.E. Pennypacker on May 22, 2012 at 12:21 PM

it’s yet another example of how the law was misrepresented to the public during the legislative process. Because the ineffectiveness of this tax credit would have been obvious to anyone with a small business background, or common sense for that matter.

If only we had businesses that specialized in collecting information like this in order to analyze it in an objective/thorough manner then distribute it widely in print or on TV. They could sell advertising or even subscriptions.

forest on May 22, 2012 at 12:22 PM

So those performing this “analysis” were either incompetent OR intentionally deceptive.

Very comforting.

Barry has a lot to answer for. Not that he will.

NoDonkey on May 22, 2012 at 12:25 PM

At least they were not 100% wrong….just 95%…

PatriotRider on May 22, 2012 at 12:20 PM

Nobody’s perfect.

Washington Nearsider on May 22, 2012 at 12:27 PM

Anything The Obama Regime does for business is constructed of smoke and mirrors. Mostly smoke.

wildcat72 on May 22, 2012 at 12:27 PM

With policies designed this poorly, some might wonder whether this was the intent all along.

Either that or they really are stupid. They tell us the electorate is and very often. We just don’t understand. It’s a messaging issue and we are the issue. Our smell detectors alert us to the aroma of bull excrement.

dogsoldier on May 22, 2012 at 12:27 PM

“You have to pass the bill…”

Nancy Pelosi’s retirement years should be spent in a cornfield.

AubieJon on May 22, 2012 at 12:29 PM

With only 170K small businesses benefiting from this tax credit, that’s barely 4% of the number touted by the White House. They were off by over 95%!

Rounding error.

Happy Nomad on May 22, 2012 at 12:29 PM

Everything this Regime says and does concerning small business is designed to make people who know nothing about small business think the Regime is helping small business. 100% political. 100% BS.

forest on May 22, 2012 at 12:31 PM

He is the DOTUS.

….and every single day provides more evidence of it (intentionally or accidentally).

PappyD61 on May 22, 2012 at 12:40 PM

They were off by over 95%!

5% effective? That’s about average for President 10-289.

MichaelGabriel on May 22, 2012 at 12:46 PM

A fact checking error, nothing more.

Please ensure all media outlets report this excuse immediately.

BobMbx on May 22, 2012 at 12:52 PM

But…But…But… I still get to keep my doctor, right?

dirtseller on May 22, 2012 at 12:04 PM

Nah, you don’t really want your doctor. We know what’s best for you. Just bend over and repeat, “Thank you sir, may I have another?”

/Obama

Kingfisher on May 22, 2012 at 12:57 PM

Must be an error cause he is the smartest President ever…ask him and he will tell you..

hillsoftx on May 22, 2012 at 12:15 PM

Yeah, he convinced me the moment he chose Biden as his running mate. (/sarc)

Kingfisher on May 22, 2012 at 1:01 PM

…HOPE & CHANGE!

KOOLAID2 on May 22, 2012 at 1:08 PM

Judging from the table, it would appear that the credit is designed for small companies with large proportions of minimum wage employees but have generous healthcare plans. A working year has about 2080 hours in it, so $20,800 is $10/hour. In order to average $25K or less, you’d have to have four of those to make up for each guy who made $50K.

cthulhu on May 22, 2012 at 1:12 PM

But…But…But… I still get to keep my doctor, right?

dirtseller on May 22, 2012 at 12:04 PM

If you like your doctor… you’re racist.

You shouldn’t like your doctor; he’ll cut off your feet needlessly to turn a profit.

You can only ever trust the government, which would never lie to you and is never corrupt or susceptible to bribery.

Big Brother is your friend.

gekkobear on May 22, 2012 at 1:19 PM

…HOPE & CHANGE!

KOOLAID2 on May 22, 2012 at 1:08 PM

…more like ROPE & CHAINS!

freedomfirst on May 22, 2012 at 1:25 PM

Looking at it another way, they inflated its popularity by 2500%

unclesmrgol on May 22, 2012 at 12:10 PM

Well within standard government acccounting guidelines.

acyl72 on May 22, 2012 at 1:34 PM

Big Brother is your friend.

gekkobear on May 22, 2012 at 1:19 PM

…and Big Brother owns the DEATH PANELS….so SHUT UP!!!

landlines on May 22, 2012 at 1:35 PM

With policies designed this poorly, some might wonder whether this was the intent all along.

Is it malice or is it incompetence?

Why not both?

tom on May 22, 2012 at 1:51 PM

With policies designed this poorly, some might wonder whether this was the intent all along.

It isn’t designed poorly. It’s doing exactly what it was designed to do. Eliminate employer based healthcare, force everyone onto the exchanges, and thereby pave the way for the government to implement single-payer.

gravityman on May 22, 2012 at 2:00 PM

Is it malice or is it incompetence?

Why not both?

tom on May 22, 2012 at 1:51 PM

Agree with that.

Some people say he is a shrewd political operative with a chip on his shoulder, determined to diminish America.

Some people say he is incompetent.

I believe it’s both.

MichaelGabriel on May 22, 2012 at 2:04 PM

“Complex rules on FTEs and average wages also limited use.”
But, of course:
“We have to pass this bill to find out what’s in it…”

mel23059 on May 22, 2012 at 3:34 PM

Being off by 95% is just more proof that 0bama is a super genius. If you can’t see that then you must be a racist or flat earther.

Wyle E. 0bama
Super Genius
Have Brain will Race Hustle.

jukin3 on May 22, 2012 at 3:53 PM

the headline? should be “ObamaCare Forced Small Business’ 2 Drop Health Insurance”

mathewsjw on May 22, 2012 at 4:38 PM

Imagine if these idiots who are running our country, were running their own businesses.

They’d be bankrupt and/or arrested in no time flat.

So WHY are they able to get away with this kind of nonsense?????

KMC1 on May 22, 2012 at 6:37 PM

What a SURPRISE………don’t tell me, this surprised any of you…every thing Obama said about the whole take over of the “health care” industry was a lie…the sad part of it is, he’s still out there trying to sell YOU on it, but I really think he knows the court, is going to end it….but he WILL try (and may) find a way to put, the end off until after Nov….and if YOU vote for him then YOU get what YOU deserve…..

nonstopca on May 23, 2012 at 11:39 AM