Luke Brown Marketing Blog

Small business owners stand to bear a significant portion of the cost associated with the latest health care reform bill, introduced on November 1 by House Speaker Nancy Pelosi. This is not a Democratic or Republican issue. This is a people and money issue.

The Wall Street Journal called this piece of legislation the worst bill ever since the New Deal of FDR. The factors which threaten small business owners and entrepreneurs are:

1. Spending Well Beyond The Country’s Means

Spending and debt are at record peacetime levels, yet only the Blue Dog Democrats and Republicans have made deficit spending an issue. Democrats complained long and loud about George W. Bush’s deficits of up to $450 billion. The deficit for fiscal 2009 was $1.42 trillion. But with Democrats in control of the Presidency and Congress, now it’s okay to have huge deficits. One word comes to mind: hypocrisy.

Democrats have tried to shove this bill though as quickly as possible. Last fall’s TARP bill, rammed through quickly, has turned out to be a mismanaged mess, with $350 billion unaccounted for. Apparently, Congress has not learned its lesson that rushing bills produces bad bills. Again, Democrats complained, yet are doing the same thing

The non-partisan Congressional Budget Office estimates the program will cost $1.055 trillion over a decade, $226 billion more than the $829 billion that Pelosi claims. Privately, some Democrats told the Associated Press the bill would cost $1.2 trillion. How can politicians vote on a bill which varies in cost by over 44%?

The bill also assumes Medicare payments to doctors will be cut by 21.5% next year and more in subsequent years. This fantasy results in a savings of about $250 billion. The house could not pass this cut in costs recently as a stand alone bill. Bottom line: Does Congress really think doctors will work for 21.5% less? The law of unintended consequences says doctors will quit or retire in droves when most needed with the aging of the Baby Boom generation. Less supply means higher costs. Congress, full of lawyers but low on actual business people, simply doesn’t understand the law of supply and demand.

2. Punishing Tax Rates Which Are Not Indexed For Inflation

To pay for this bill, $572 billion in new taxes will be raised, mostly from a 5.4% surcharge on joint filers earning over $1 million and single filers earning over $500,000. This clearly affects many entrepreneurs and small businesses, especially Subchapter S corporations and LLCs ( limited liability corporations).

This surcharge will affect more earners with each passing year since it isn’t indexed for inflation. Again, Democrats have not learned their lesson from the creation and implementation of the AMT (Alternative Minimum Tax) law, passed in 1969 and intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code

The AMT would have hit about 25 million taxpayers in 2008 had Congress not acted. Instead of indexing for inflation, Congress now wastes time every year to pass an extension of the AMT to keep middle class Americans from being taxed too heavily.

The bill also taxes businesses 8% of their payroll if they don’t offer insurance or pay at least 72.5% of their workers’ premiums. Such taxes crimp the bottom line, reducing  hiring, job creation, and job and economic  growth. The U.S. has one of the highest corporate income tax rates in the world. Adding another tax will force more businesses to flee to low tax countries, causing more jobs to disappear and leading to an increase in the unemployment rate.

A tax of 2.5% of adjusted gross income will also be levied on people who won’t buy insurance. If they currently can’t afford insurance, how will having less money make insurance more affordable?

President Obama’s Medicare actuaries estimate that the federal share of U.S. health dollars will rise from the current 46% to over 60%. As any business person knows, when the government gets involved, it’s going to cost more in money and time. Businesses can not afford that expense.

Your comments on this important issue are welcomed.

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