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Analysis: Most Small Businesses Subject to Democrats’ 8% Payroll Tax

July 28, 2009

Despite unemployment fast approaching 10 percent, a new analysis shows the Democrats’ health care plan could force as many as 61% of small businesses who already provide health insurance and as many as 40% of large firms that already provide health insurance to pay a new 8% payroll tax.  So, while Democrats tell the millions of employees who have coverage today not to worry, the reality is far different.  Not only do employees need to worry about keeping the insurance they have but also keeping the job and wages they have.  Here are the facts:

  • The House Democrats’ bill mandates employers must pay a minimum of 72.5% of health insurance premiums for individuals and 65% for families.  If an employer fails to do so, then it will be subject to a job and wage crushing 8 percent payroll tax.  (Division A, Sec. 312 (b)(1)(A) and (B) of H.R. 3200).
  • According to a 2008 Kaiser Family Foundation survey of employer-sponsored insurance, this new mandate will hit small firms – and their employees – especially hard.  The survey found that the majority of small firms (those with less than 200 employees) don’t meet the Democrats’ standards.  Up to 61% of small employers fail the Democrat test for family coverage and up to 21% of small employers fail the Democrat test for single coverage.
  • Even larger firms, those most often assumed to be able to afford more, fail to meet the minimum contribution requirements.  Up to 40% of large firms do not pass the test for family coverage and up to 21% of large firms fail the test for single coverage.
  • As a result of this new tax, employers who already provide a plan to their employees will have to spend more on these benefits.  These added costs of doing business could result in employers laying off workers, reducing salaries and being unable to hire new workers.
  • Bottom line?  More taxes and more costs that will hurt the very workers they are supposed to help.  Don’t just take our word for it, everyone from the Congressional Budget Office to the National Retail Federation agrees:
    • The Congressional Budget Office said that “employees largely bear the cost of… play-or-pay fees in the form of lower wages.”
    • The U.S. Chamber of Commerce, which represents more than 3 million businesses and organizations, said the Democrats’ proposal, “will not increase coverage – rather it will lead to out-sourcing, off-shoring, hiring of independent contractors, spinning-off small new companies, reducing workforces, and reducing wages.”
    • The National Federation of Independent Business, which represents 350,000 small businesses, said through mandates, “employees ultimately bear the cost of their health insurance through lower employment, depressed wages, depressed productivity, and loss of economic opportunities.”
    • The National Retail Federation, which represents 1 in 5 American workers, has said, “Employer mandates of any kind amount to a tax on jobs.  We can think of few more dangerous steps to take in the middle of our present recession.”