The Wall Street Journal
Workers will pay for the new health-care payroll levy
Even many Democrats are revolting against Speaker Nancy Pelosis 5.4 income surtax to finance ObamaCare but another tax in her House bill isnt getting enough attention.
To wit the up to 10-percentage point payroll tax increase on workers and businesses that dont provide health insurance. This should put to rest the illusion that no one making less than $250000 in income will pay higher taxes.
To understand why consider how the Pelosi jobs tax works. Under the House bill firms with employee payroll of above $250000 without a company health plan would pay a tax starting at 2 of wages per employee. That rate would quickly rise to 8 on firms with total payroll of $400000 or more.
A tax credit would help very small businesses adjust to the new costs but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press Blue Dogs were taking credit for pushing those payroll amounts up to $500000 and $750000 but those are still small employers.
So who bears the burden of this tax? The economic research is close to unanimous that a payroll tax is a tax on labor and is thus shouldered mostly if not entirely by workers. Employers merely collect the tax and then pass along its costs in lower wages or benefits. This is the view of the Democratic-controlled Congressional Budget Office which advised on July 13: If employers who did not offer health insurance were required to pay a fee employees wages and other forms of compensation would generally decline by the amount of that fee from what they otherwise would have been."
To put this in actual dollars a worker earning say $70000 a year could lose some $5600 in take home pay to cover the costs of ObamaCare. And by the way this is in addition to the 2.5 tax that the individual worker would have to pay on gross income if he doesnt buy the high-priced health insurance that the government will mandate. In sum thats a near 10-percentage point tax on wages and salaries on top of the 15 that already hits workers to finance Medicare and Social Security.
Even Democrats are aware that his tax would come out of the wallets of the very workers they pretend to be helping so they inserted a provision on page 147 of the bill prohibiting firms from cutting salaries to pay the tax. Thus they figure they can decree that wages cannot fall even as costs rise. Of course all this means is that businesses would lay off some workers or hire fewer new ones or pay lower starting salaries or other benefits to the workers they do hire.
Cornell economists Richard Burkhauser and Kosali Simon predicted in a 2007 National Bureau of Economic Research study that a payroll tax increase of about this magnitude plus the recent minimum wage increase will translate into hundreds of thousands of lost jobs for those with low wages. Pay or play schemes says Mr. Burkauser wind up hurting the very low-wage workers they are supposed to help." The CBO agrees arguing that play or pay policies could reduce the hiring of low-wage workers whose wages could not fall by the full cost of health insurance or a substantial play-or-pay fee if they were close to the minimum wage."
To make matters worse many workers and firms would have to pay the Pelosi tax even if the employer already provides health insurance. Thats because the House bill requires firms to pay at least 72.5 of health-insurance premiums for individual workers and 65 for families in order to avoid the tax. A Kaiser Family Foundation survey in 2008 found that about three in five small businesses fail to meet the Pelosi test and will have to pay the tax. In these instances the businesses will have every incentive simply to drop their coverage.
A new study by Sageworks Inc. a financial consulting firm runs the numbers on the income statements of actual companies. It looks at three types of firms with at least $5 million in sales: a retailer a construction company and a small manufacturer. The companies each have total payroll of between $750000 and $1 million a year. Assuming the firms absorb the cost of the payroll tax their net profits fall by one-third on average. That is on top of the 45 income tax and surtax that many small business owners would pay as part of the House tax scheme so the total reduction in some small business profits would climb to nearly 80. These lower after-tax profits would mean fewer jobs.
To put it another way the workers who will gain health insurance from ObamaCare will pay the steepest price for it in either a shrinking pay check or no job at all.
