Obama tax cuts a "bait and switch"

The AP decided today to fact-check one of the Obama administration’s favorite claims — that they have passed so many tax cuts that Tea Partiers should be rallying to thank him.  The White House unveiled a small business tax credit this week, as part of the ObamaCare bill, that they claimed would stimulate job creation.  However, as the AP discovers, it may actually hinder both job creation and salary growth:

Zach Hoffman was confident his small business would qualify for a new tax cut in President Barack Obama’s health care overhaul law.

But when he ran the numbers, Hoffman discovered that his office furniture company wouldn’t get any assistance with the $79,200 it pays annually in premiums for its 24 employees. “It leaves you with this feeling of a bait-and-switch,” he said.

When the administration unveiled the small business tax credit earlier this week, officials touted its “broad eligibility” for companies with fewer than 25 workers and average annual wages under $50,000 that provide health coverage. Hoffman’s workers earn an average of $35,000 a year, which makes it all the more difficult to understand why his company didn’t qualify.

Lost in the fine print: The credit drops off sharply once a company gets above 10 workers and $25,000 average annual wages.

It’s an example of how the early provisions of the health care law can create winners and losers among groups lawmakers intended to help—people with health problems, families with young adult children and small businesses. Because of the law’s complexity, not everyone in a broadly similar situation will benefit.

CBS actually took the lead on reporting the skewed incentives in the tax credit, prior to the final vote on the bill.  Their report mainly focused on the disincentives to provide health insurance, given the cost of such policies and the much lower cost of the penalties involved.  The AP picks up what CBS missed, which is that even the tax credits create strange incentives and disincentives for business owners.

In order to qualify for the full tax credit, business owners have to keep their staff to 10 or fewer workers and the average salary at the poverty line. What will business owners do under that set of incentives?  They certainly won’t take the risk of expansion past the 10-worker level, not unless they’re certain to get a return greater than both the extra costs of the workers and the lost opportunity cost of the tax credit.  The same is true for offering higher wages.  Instead of only having to scale the market burden for labor costs, the Obama administration has a tax penalty that now must be overcome before an owner pays something above poverty-level wages.

Actually, it’s worse than that.  The tax credit disappears unless the business has 10 or fewer workers and pays less than $25K per worker in average salary. In an economy that’s having trouble creating jobs and getting real wage growth, why did the Obama administration and the Democrats in Congress set the incentives against both?