ObamaCare: the Burden on Small Business

Michael F. Cannon is director of health policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.

By Michael F. Cannon (@mfcannon)

How will ObamaCare affect a small business owner who's married with two kids?

For one thing, he and his business will pay higher health premiums beginning this year. 

He and his employees will have to purchase unlimited lifetime coverage and unlimited annual coverage (this requirement phases in between now and 2014).  The Obama administration estimates that these mandates alone could increase premiums for some businesses by 7 percent.

He and his employees will have to purchase coverage for dependent children without any waiting periods for pre-existing conditions.  Another mandate will require them to purchase coverage for dependents up to age 26.  One private estimate puts the cost of this “slacker” mandate an average of 2 percent, but our small-business owner’s premiums may rise even more.  Perversely, the cost may force him to drop dependent coverage entirely.

If his health plan loses its “grandfathered” status—as most small businesses will—he and his workers will have to purchase 100-percent coverage for a long list of preventive services. The administration estimates this mandate will increase premiums on average by 1.5 percent, but private estimates are in the range of 3-4 percent.

The Obama administration also acknowledges there is “tremendous,” “substantial,” and “considerable” uncertainty about these mandates’ costs.  That is, they may be higher than the administration says.

These mandates are a double-whammy for our small-business owner.  He already faces some of the highest premiums out there.  Yet he also provides some of the least comprehensive health plans.  So his premiums will rise more than larger employers’ premiums will.

According to HHS, these added costs will likely push him to switch health plans, and he will likely switch to a plan that complies with the mandates, but places tight restrictions on accessing care.

If he offers his workers a health savings account (HSA), medical savings account (MSA), flexible spending account (FSA), or health reimbursement arrangement (HRA), its employees will lose the ability to purchase over-the-counter drugs tax-free.  If they make non-medical withdrawals from their HSA or MSA, the penalty will double from 10 percent to 20 percent.

If his small business is a tanning salon, it is already paying a new 10-percent tax on its sales.

The Obama administration is quick to note that beginning in 2010, one third of small businesses may be able to get a tax credit that covers up to 35 percent of their health-benefits.  But that credit is not a long-term solution to rising costs; it disappears after 6 years, and often sooner.  It will also discourage hiring, because hiring too many workers will reduce or eliminate the credit.

By 2013, all businesses will have to fill out an IRS Form 1099 every time they purchase more than $600 worth of stuff from a vendor.  If our small-business owner owns a trucking company, he will have to ask gas stations for their tax ID numbers.  If the gas stations don’t cooperate, he will have to withhold money (i.e., send it to the IRS) for gas expenses.  This will be the biggest nightmare in the bill for small businesses.  Ironically, it will also hit many doctors, journalists, and others who supported ObamaCare, but run their own small business on the side.

If our small-business owner and his wife make over $250,000, they’ll pay the new, higher Medicare “payroll” tax of 3.8 percent, starting in 2013.  (It’s currently 2.9 percent).

But it’s 2014 where things really get messy.  That’s when the government will require everyone to purchase even more yet-unspecified types of coverage, which will cause premiums to rise even more.

If our small-business owner has 50 or more employees – or fewer full-time employees and lots of part-timers – he faces the prospect of tens of thousands of dollars in penalties under ObamaCare’s employer mandate if he does not provide “adequate” coverage to his workers.

The worst part is that these penalties will be triggered by factors that are unpredictable, unobservable, and totally beyond the control of our small-business owner.  He could get hit with those penalties simply because a worker’s spouse loses or changes jobs.  Or if a worker’s spouse moves out or dies.  Or if an employee’s parents move in.

This creates so much uncertainty that a small-business owner with 55 employees may have to fire six of them just to eliminate that potential liability.

But if he splits his 60-employee small business into two 25-employee businesses, then the federal government—maybe the IRS—will start snooping around to determine whether he did so for legitimate business reasons or just to avoid the mandate.

No matter the size of his firm, if he or his workers earn around $30,000 to $100,000 and get coverage through one of the new health insurance exchanges, their implicit marginal tax rates will jump from around 30-40 percent all the way up to 60-75 percent!

In many cases, if his employees get a raise or work more hours, ObamaCare will leave them with less take-home pay, because the higher earnings will cause them to lose thousands of dollars in subsidies.  Their implicit marginal tax rate will exceed 100 percent!

Our small-business owner is paying all these costs now – and so are his workers, and the unemployed.

ObamaCare has created enormous uncertainty.  Our small-business owner doesn’t have any idea what ObamaCare’s mandates will cost him in 2011, 2012, 2013, or 2014.  Or what additional benefits he will have to provide.  Or what kind of insurance options will be available by then.  All he knows is that these things will cost him more – possibly a lot more – and that he’s going to be spending lots of time and money, for the foreseeable future, on tax accountants and attorneys.

And he’s going to be much less likely to take on new commitments like expanding or hiring new workers.

Michael F. Cannon is director of health policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.

In light of the national conversation surrounding the rights of free speech, religion and self-defense, Mercury One is thrilled to announce a brand new initiative launching this Father's Day weekend: a three-day museum exhibition in Dallas, Texas focused on the rights and responsibilities of American citizens.

This event seeks to answer three fundamental questions:

  1. As Americans, what responsibility do we shoulder when it comes to defending our rights?
  2. Do we as a nation still agree on the core principles and values laid out by our founding fathers?
  3. How can we move forward amidst uncertainty surrounding the intent of our founding ideals?

Attendees will be able to view historical artifacts and documents that reveal what has made America unique and the most innovative nation on earth. Here's a hint: it all goes back to the core principles and values this nation was founded on as laid out in the Declaration of Independence and the Bill of Rights.

Exhibits will show what the world was like before mankind had rights and how Americans realized there was a better way to govern. Throughout the weekend, Glenn Beck, David Barton, Stu Burguiere, Doc Thompson, Jeffy Fisher and Brad Staggs will lead private tours through the museum, each providing their own unique perspectives on our rights and responsibilities.

Schedule a private tour or purchase general admission ticket below:

June 15-17


Mercury Studios

6301 Riverside Drive, Irving, TX 75039

Learn more about the event here.

About Mercury One: Mercury One is a 501(c)(3) charity founded in 2011 by Glenn Beck. Mercury One was built to inspire the world in the same way the United States space program shaped America's national destiny and the world. The organization seeks to restore the human spirit by helping individuals and communities help themselves through honor, faith, courage, hope and love. In the words of Glenn Beck:

We don't stand between government aid and people in need. We stand with people in need so they no longer need the government

Some of Mercury One's core initiatives include assisting our nation's veterans, providing aid to those in crisis and restoring the lives of Christians and other persecuted religious minorities. When evil prevails, the best way to overcome it is for regular people to do good. Mercury One is committed to helping sustain the good actions of regular people who want to make a difference through humanitarian aid and education initiatives. Mercury One will stand, speak and act when no one else will.

Support Mercury One's mission to restore the human spirit by making an online donation or calling 972-499-4747. Together, we can make a difference.

What happened?

A New York judge ruled Tuesday that a 30-year-old still living in his parents' home must move out, CNN reported.

Failure to launch …

Michael Rotondo, who had been living in a room in his parents' house for eight years, claims that he is owed a six-month notice even though they gave him five notices about moving out and offered to help him find a place and to help pay for repairs on his car.

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“I think the notice is sufficient," New York State Supreme Court Judge Donald Greenwood said.

What did the son say?

Rotondo “has never been expected to contribute to household expenses, or assisted with chores and the maintenance of the premises, and claims that this is simply a component of his living agreement," he claimed in court filings.

He told reporters that he plans to appeal the “ridiculous" ruling.

Reform Conservatism and Reaganomics: A middle road?

SAUL LOEB/AFP/Getty Images

Senator Marco Rubio broke Republican ranks recently when he criticized the Tax Cuts and Jobs Act by stating that “there's no evidence whatsoever that the money's been massively poured back into the American worker." Rubio is wrong on this point, as millions of workers have received major raises, while the corporate tax cuts have led to a spike in capital expenditure (investment on new projects) of 39 percent. However, the Florida senator is revisiting an idea that was front and center in the conservative movement before Donald Trump rode down an escalator in June of 2015: reform conservatism.

RELATED: The problem with asking what has conservatism conserved

The "reformicons," like Rubio, supported moving away from conservative or supply-side orthodoxy and toward policies such as the expansion of the child and earned income tax credits. On the other hand, longstanding conservative economic theory indicates that corporate tax cuts, by lowering disincentives on investment, will lead to long-run economic growth that will end up being much more beneficial to the middle class than tax credits.

But asking people to choose between free market economic orthodoxy and policies guided towards addressing inequality and the concerns of the middle class is a false dichotomy.

Instead of advocating policies that many conservatives might dismiss as redistributionist, reformicons should look at the ways government action hinders economic opportunity and exacerbates income inequality. Changing policies that worsen inequality satisfies limited government conservatives' desire for free markets and reformicons' quest for a more egalitarian America. Furthermore, pushing for market policies that reduce the unequal distribution of wealth would help attract left-leaning people and millennials to small government principles.

Criminal justice reform is an area that reformicons and free marketers should come together around. The drug war has been a disaster, and the burden of this misguided government approach have fallen on impoverished minority communities disproportionately, in the form of mass incarceration and lower social mobility. Not only has the drug war been terrible for these communities, it's proved costly to the taxpayer––well over a trillion dollars has gone into the drug war since its inception, and $80 billion dollars a year goes into mass incarceration.

Prioritizing retraining and rehabilitation instead of overcriminalization would help address inequality, fitting reformicons' goals, and promote a better-trained workforce and lower government spending, appealing to basic conservative preferences.

Government regulations tend to disproportionately hurt small businesses and new or would-be entrepreneurs. In no area is this more egregious than occupational licensing––the practice of requiring a government-issued license to perform a job. The percentage of jobs that require licenses has risen from five percent to 30 percent since 1950. Ostensibly justified by public health concerns, occupational licensing laws have, broadly, been shown to neither promote public health nor improve the quality of service. Instead, they serve to provide a 15 percent wage boost to licensed barbers and florists, while, thanks to the hundreds of hours and expensive fees required to attain the licenses, suppressing low-income entrepreneurship, and costing the economy $200 billion dollars annually.

Those economic losses tend to primarily hurt low-income people who both can't start businesses and have to pay more for essential services. Rolling back occupational licenses will satisfy the business wing's desire for deregulation and a more free market and the reformicons' support for addressing income inequality and increasing opportunity.

The favoritism at play in the complex tax code perpetuates inequality.

Tax expenditures form another opportunity for common ground between the Rubio types and the mainstream. Tax deductions and exclusions, both on the individual and corporate sides of the tax code, remain in place after the Tax Cuts and Jobs Act. Itemized deductions on the individual side disproportionately benefit the wealthy, while corporate tax expenditures help well-connected corporations and sectors, such as the fossil fuel industry.

The favoritism at play in the complex tax code perpetuates inequality. Additionally, a more complicated tax code is less conducive to economic growth than one with lower tax rates and fewer exemptions. Therefore, a simpler tax code with fewer deductions and exclusions would not only create a more level playing field, as the reformicons desire, but also additional economic growth.

A forward-thinking economic program for the Republican Party should marry the best ideas put forward by both supply-siders and reform conservatives. It's possible to take the issues of income inequality and lack of social mobility seriously, while also keeping mainstay conservative economic ideas about the importance of less cumbersome regulations and lower taxes.

Alex Muresianu is a Young Voices Advocate studying economics at Tufts University. He is a contributor for Lone Conservative, and his writing has appeared in Townhall and The Daily Caller. He can be found on Twitter @ahardtospell.

Is this what inclusivity and tolerance look like? Fox News host Tomi Lahren was at a weekend brunch with her mom in Minnesota when other patrons started yelling obscenities and harassing her. After a confrontation, someone threw a drink at her, the moment captured on video for social media.

RELATED: Glenn Addresses Tomi Lahren's Pro-Choice Stance on 'The View'

On today's show, Pat and Jeffy talked about this uncomfortable moment and why it shows that supposedly “tolerant" liberals have to resort to physical violence in response to ideas they don't like.