ObamaCare’s Vanishng Small Business Tax Credit

Since the Administration’s earliest efforts to persuade America that ObamaCare will do more good than harm, one of the most hyped selling points has been “small business tax credits.”

This is the second of four articles comparing the promises in the President’s 2009 speech with the reality of ObamaCare implementation.  The first is here.

In a September 2009 speech to a joint session of Congress the President promised:

For those small businesses who still cannot afford the lower-priced insurance available in the exchange, we will provide tax credits, the size of which will be based on your need.

More recently, during one of the President’s endless campaign tours, he told the audience:

Small business owners who provide health care to their workers can sit down at the end of the week, look at their expenses, and begin calculating how much money they’re going to save!

Wow!  Weekly savings for the small business employer to count. Sounds exciting, huh?  The President and the government PR machine hope to plant a perception that ObamaCare treats small employers generously and they have no reason to complain.

But, as with all the promises of ObamaCare, the implementation particulars fall short of the hype.  It turns out that the small business tax credit is so limited and restrictive it’s worthless or nearly worthless to most small businesses.

• The tax credit does not apply to the cost of health insurance for business’s owners or partners. 
• It doesn’t apply to relatives of owners or partners who are employees in the business.
• If a businesses grows to 25 full time employees it it’s tax credit vanishes.
  
• If the employees’ average wages rise to $50,000 per year are the tax credit vanishes.
  
• If the employer chooses a health plan that costs more than the government later determines is more costly than the “average” in the employer’s state, the tax credit is retroactively reduced.

But even these miserly rules make the tax credit appear to be more generous than it is.

It turns out  that the  maximum credit, 35% of the employer’s health care cost, applies only to businesses with fewer than eleven employees who pay average wages of less than $25,000 per year to full time employees.

For employers who hire more than ten employees, or pay more than $25,000 the law imposes a ruthless sliding scale, slashing the value of the tax credit in response to each additional employee and each dollar of increased wages.  The table above shows the value of the tax credit to six hypothetical employers.  

It gets worse next year

For some, probably most small businesses, even this stingy program will vanish at the end of 2013.  After that the tax credit will be allowed only if the small business employer buys an ObamaCare compliant insurance policy through the Small Business Health Options Program or SHOP a government run exchange. 

Because ObamaCare compliant policies come with a raft of new mandates, including a package of “free” (no co-pay) benefits, they will be substantially more expensive than the health plans most small businesses now choose.  Thus, for most small employers it will be less expensive to them to keep the policies they have even though they’ll lose the tax credit. 

Next: ObamaCare is a textbook example of the law of unanticipated, undisclosed consequences.