[Congressional Record Volume 156, Number 118 (Thursday, August 5, 2010)]
[Senate]
[Pages S6868-S6871]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS TAX RELIEF
Mr. GRASSLEY. Mr. President, we spent nearly 6 weeks debating a bill
that would help small business.
My friends on the other side of the aisle exclaimed that the bill was
a jobs bill, one that would help small business--the engine of our
economy.
The senior Senator from Louisiana--for whom I have great admiration
as an advocate for small business--said, ``If the Democrats aren't for
small business, I don't know what we're for.''
Well, the small business jobs bill was not passed by this body.
My friends on the other side will claim that Republicans blocked the
bill.
But I think my friends need to look in the mirror when placing blame
on their inability to govern.
Even if the small business jobs bill would have passed, the tax
measures in that bill are only a drop in the bucket when it comes to
the taxes and increased regulation small business is going to have to
endure.
That's right, although Democratic leadership and the White House
continue to say that they are for small business, any legislative
measure that has been advertised as helping small business has not
lived up the hype.
Let's start with the new health care reform law.
During the debate over health care reform, my friends on the other
side of the aisle--including top officials in the White House--
explained that the new law would provide tax credits to small business
to help them pay for health insurance.
My friends said it so many times, you would almost think that the so-
called tax credit was the best thing since sliced bread.
[[Page S6869]]
Many Democratic Senators based their vote in favor of the health care
reform bill solely on the belief that the small business tax credit for
health insurance would help struggling small businesses.
Well, even after the White House spent taxpayer dollars to send
postcards to 4 million small businesses informing them of the so-called
tax credit for health insurance, the tax credit has been a dud.
That is not according to this Senator; that is according to small
business owners and brokers who are in the business of selling
insurance to small business.
For example, just the other day--Thursday, July 29--the Bloomberg
news organization wrote an article noting that the response to the so-
called tax credit for small business ``has been cool'' according to
``health-plan brokers across the country.''
Here are some quotes from the article about the small business tax
credit:
James Stenger, director of business development for Benefit-Mall,
said, ``The reality is it doesn't meet the hype . . . It's had very
little traction so far . . .''
Russ Childers, a broker in Americus, GA, said, ``It fell short of
what was needed to help businesses.''
Todd Page, of Warrenville, IL, said, ``We've really wanted it to
work, because we'd sell more . . . It just hasn't worked out, and most
firms have been disappointed.''
Thomas Harte, president of Landmark Benefits, Inc., said, ``We're not
seeing more people becoming insured as a result of a subsidy coming
their way.''
They are not the only ones decrying the so-called tax credit for
health insurance.
The chief executive officer of the largest organization representing
small business--the National Federation of Independent Business--
questioned the effectiveness of this tax credit.
Small business owners who also had high hopes that the credit would
help them were surprised and extremely disappointed when they found out
they did not qualify for the credit.
A May 20 Associated Press article chronicles these frustrations.
I would like to read one passage from the article before I move on.
The article said:
Zach Hoffman was confident his small business would qualify
for a new tax cut in President Barack Obama's health care
overhaul law. But when he ran the numbers, Hoffman discovered
that his office furniture company wouldn't get any assistance
with the $79,200 it pays annually in premiums for its 24
employees. `It leaves you with this feeling of a bait-and-
switch,' he said.
Every day, I hear from Iowa small business owners who are frustrated
with the so-called small business tax credit for health insurance.
I have been told that--after gathering all of the required
information and paying an accounting professional to calculate all of
the phaseouts and limitations--the time and cost almost outweighs any
benefit for those businesses lucky enough to qualify.
Steven Yeater of Wilton, IA, the co-owner of a products finishing
business, wrote me a letter telling me that the tax credit is ``(1) not
well thought out or discussed, (2) ridiculously complicated for a small
business owner to understand and implement, and (3) once again,
Congress is over-selling/over-promising the benefits of the tax
credit.''
This is just one example where the Democratic majority has failed
small business.
This is one example where the Democratic majority has touted a so-
called benefit for small business that did not live up to its hype.
And now, small business is faced with mounting tax increases and
regulatory burdens.
What do I mean?
The new health care reform law included 20 tax increases. Thirteen of
them fall on individuals and families, and 7 of them hit businesses.
These tax increases will be devastating for small business. Moreover,
these tax increases far outweigh the benefit of the so-called small
business tax credit for health insurance that some businesses are lucky
enough to receive.
And this is not the only tax increase small business will face. When
Congress returns after the August recess, we are going to debate the
bipartisan tax relief that was enacted back in 2001 and 2003. That tax
relief is set to expire at the end of this year unless Congress acts.
Allowing the bipartisan tax relief to expire will result in the largest
tax increase in our Nation's history.
My friends on the other side of the aisle have indicated that they
would like to extend the bipartisan tax relief for the ``middle
class.''
I want to emphasize that this means that my Democratic colleagues
want to extend 80 percent of the bipartisan tax relief that they like
to call the Bush tax cuts.
Actually, the only reason why they call it the Bush tax cuts is to
vilify the tax relief. But my friends seem to support 80 percent of the
tax cuts they enjoy vilifying so often.
Which brings me to my final point. My friends on the other side of
the aisle would extend some of the tax relief but not all of it. My
friends want to allow the top marginal tax rates--and a number of
hidden taxes that affect these taxpayers--to expire. Why? Because my
friends say the country--our Federal Government--cannot afford to give
tax cuts to the ``rich.''
But, it is not the rich who are going to be burdened if the rates
were allowed to expire; it is small business that will suffer.
So in closing, I refer back to the statement of the distinguished
Senator from Louisiana, which was, if Democrats are not for small
business, I don't know what we are for.
The Democratic leadership is not for extending all of the bipartisan
tax relief. So I will leave it to others to decide whether or not my
Democratic colleagues are for small business.
I ask unanimous consent to have the items to which I referred printed
in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Bloomberg Government in Development, July 29, 2010]
Small Business Slow To Embrace Health Tax Credits, Brokers Say
(By David Lerman and Liz Smith)
One of the ways President Barack Obama envisioned expanding
coverage under the health overhaul was by giving small
businesses a tax credit worth tens of thousands of dollars to
help cover their employees.
Though 4 million postcards were mailed to eligible firms,
response has been cool, say health-plan brokers across the
country. The reason is that the credit starts to phase out
for companies that pay average annual wages of more than
$25,000, leaving out many businesses in higher-wage states
and discouraging others who don't think the credit will help.
``The reality is it doesn't meet the hype,'' said James
Stenger, director of business development for BenefitMall,
which sells small-group plans in New Jersey. ``It's had very
little traction so far.''
Todd Page, vice president of sales at JLBG Health in
Warrenville, Illinois, said about 40 percent of the 460 small
businesses his firm contacted were eligible for the credit.
Only about seven would get the full benefit and be able to
claim a credit equal to 35 percent of the premiums they pay.
Independent brokers sell small-group policies from insurers
such as UnitedHealth Group Inc. and Aetna Inc. to firms with
up to 50 employees and can assess how tax incentives affect
coverage decisions.
Karen Mills, administrator of the U.S. Small Business
Administration, said complaints about the credit's limited
reach are premature.
``I think this is all still in anecdote land,'' Mills said
in an interview. ``The math says it's likely to be
positive.''
Mills said the income cap was necessary because Congress
was intent on keeping program costs under control. ``It's
just trying to get to the people who need the help the
most.''
Estimated Savings
The Congressional Budget Office estimates the tax credit
will save small businesses $40 billion by 2019, and Obama
said it will help millions of companies solve one of their
biggest worries: offering health insurance to their workers.
The plan is intended for enterprises such as independent
printers, mechanics shops and restaurants, which lack the
negotiating power that big companies have with insurers. The
biggest breaks go to the smallest, least-wealthy workforces
under the plan.
Targeted Employers
The Internal Revenue Service said the plan is for employers
who pay at least half the cost of individual coverage for
their employees in 2010. From 2010 to 2013, the maximum
credit goes to companies with 10 or fewer full-time employees
that pay annual average wages of $25,000 or less.
The credit is completely phased out for employers that have
25 or more workers or that pay average wages of $50,000 a
year or more. Because eligibility rules are partly
[[Page S6870]]
based on the number of employees, brokers complain that the
tax break diminishes relatively quickly. For example, a firm
with 14 workers that pays an average of $30,000 gets to claim
a credit worth 19 percent of premiums paid.
The Obama administration said the program can help as many
as two thirds of the nation's 6 million small businesses,
based on Small Business Administration figures.
``It's worth perhaps tens of thousands of dollars to your
companies,'' Obama said in a May 25 speech at the White
House. ``And it will provide welcome relief to small business
owners, who all too often have to choose between hiring or
keeping your health care for yourselves and your workers.''
Mills said ``a huge proportion'' of these small businesses
haven't been able to afford insurance or get access to it.
``This could very well tip the scales for some of them,''
she said.
Cost of Living
Many businesses who buy small-group health insurance have
10 or fewer employees. Most won't enjoy anything close to
that 35 percent maximum credit because they pay more than
$25,000 in average wages, the brokers said.
Stenger said the average family plan in New Jersey costs
$1,500 to $1,800 a month. So a tax break that ends up cutting
premium costs by 10 percent, for example, wouldn't induce
firms to start offering coverage.
``The impact is a lot less than the crafters of this
provision thought it would be, at least in New Jersey,'' he
said.
`Bleeding Wound'
Brokers in other regions said the income issue isn't
isolated to high-cost states like New Jersey.
``The income hurts the worst,'' said Russ Childers, a
broker in Americus, Georgia. ``It fell short of what was
needed to help businesses.''
The National Federation of Independent Business, a small-
business lobbying group, disputed the administration's
estimates for how many businesses will benefit.
``It's the equivalent of putting a band aid on a profusely
bleeding wound,'' said Michelle Dimarob, head of legislative
affairs for the federation. ``It won't solve the number-one
problem for small businesses.''
The group in May joined Florida's legal challenge to the
health-care reform law, becoming the first private
organization seeking to overturn the measure.
Some 46 percent of companies have fewer than 10 workers,
and many of those businesses insure only owners' families,
Dimarob said. The credit, which expires in its current form
in 2014 and fully in 2016, isn't likely to change this, she
said. The credit can increase to 50 percent for the last two
years if owners purchase insurance through a state exchange.
Michigan Insurers
Insurers in Michigan are scaling back attempts to sell to
small businesses, said Steven Selinsky, the incoming
president of his industry's trade group, the National
Association of Health Underwriters. Selinsky closed his
agency that sold small-group health insurance.
``After the economy collapsed, people just weren't
purchasing,'' said Selinsky, who now works for BeneSys Inc.,
a third-party insurance administrator for unions. ``It's just
not doing what we had hoped.''
Page, the Illinois broker, said his staff has provided 61
new quotes for potential clients and has sold two new
policies to that group.
``We've really wanted it to work, because we'd sell more,''
said Page, whose clients include doctors' offices and auto-
body repair shops. ``It just hasn't worked out, and most
firms have been disappointed.''
Thomas Harte, president of Landmark Benefits Inc., who
serves about 400 employers in New Hampshire and
Massachusetts, said he hadn't come across any clients
eligible for the tax credit. He has a long list of customers
that exceed allowable income thresholds, or who have too many
full-time workers.
``We're not seeing more people becoming insured as a result
of a subsidy coming their way.''
Blue Cross Gains
One exception to the experience of many insurance brokers
has been Blue Cross and Blue Shield of Kansas City, which
started an intensive advertising campaign to promote the tax
credit when the law was enacted.
The group sold 227 plans to small businesses in the past
three months--an 80 percent increase in sales compared with a
normal three-month period, said Tom Bowser, chief executive
officer.
Even with the added business, Bowser said most small
businesses in the Kansas City market don't qualify for the
tax credit. Of the firms with fewer than 25 employees, no
more than a quarter of them qualify, he said.
Help for Idaho
The credit has potential to help in Idaho because its
economy is dominated by small businesses averaging eight
workers, said Scott Leavitt, owner of an insurance brokerage
in Boise and the immediate past president of the health
underwriters association. On the other hand, Idaho's average
per capita income is $33,000, and more than $35,000 for his
block of customers, he said.
About a quarter of his clients could see some relief,
though it would only be significant for 12 percent, he said.
Administration officials say they expect more businesses to
warm to the incentives.
``These tax credits will make it easier for small
businesses to give their workers the insurance they need,''
said Nicholas Papas, a spokesman for the White House. ``We're
working diligently to ensure small businesses know about this
credit.''
``Small businesses are looking into it because they're not
dumb,'' Mills of the Small Business Administration said.
``People want to provide health insurance. The reason is
they're losing good employees when they don't.''
____
Fact Check: Tax Cut Math Doesn't Add Up for Some
Fact Check: `Broad' Health Care Tax Cut for Small Business Leaves Out
Some Companies
(By Ricardo Alonso-Zaldivar, Associated Press Writer)
Washington (AP).--Zach Hoffman was confident his small
business would qualify for a new tax cut in President Barack
Obama's health care overhaul law.
But when he ran the numbers, Hoffman discovered that his
office furniture company wouldn't get any assistance with the
$79,200 it pays annually in premiums for its 24 employees.
``It leaves you with this feeling of a bait-and-switch,'' he
said.
When the administration unveiled the small business tax
credit earlier this week, officials touted its ``broad
eligibility'' for companies with fewer than 25 workers and
average annual wages under $50,000 that provide health
coverage. Hoffman's workers earn an average of $35,000 a
year, which makes it all the more difficult to understand why
his company didn't qualify.
Lost in the fine print: The credit drops off sharply once a
company gets above 10 workers and $25,000 average annual
wages.
It's an example of how the early provisions of the health
care law can create winners and losers among groups lawmakers
intended to help--people with health problems, families with
young adult children and small businesses. Because of the
law's complexity, not everyone in a broadly similar situation
will benefit.
Consider small businesses: ``The idea here is to target the
credits to a relatively low number of firms, those who are
low-wage and really quite small,'' said economist Linda
Blumberg of the Urban Institute public policy center.
On paper, the credit seems to be available to companies
with fewer than 25 workers and average wages of $50,000. But
in practice, a complicated formula that combines the two
numbers works against companies that have more than 10
workers and $25,000 in average wages, Blumberg said.
``You can get zero even if you are not hitting the max on
both pieces,'' Blumberg said.
Hoffman used an online calculator to figure his company's
eligibility. At least three are available: from the House
Energy and Commerce Committee, which helped write the
legislation; from the progressive Center for American
Progress; and from the National Federation of Independent
Business, which is seeking to overturn the law in federal
court. All produced the same result.
``I think (the administration's) intentions are good, but
the numbers and applications don't come out to what they
intend,'' said Hoffman, part owner of Wiley Office Furniture,
a third-generation family business in Springfield, Ill.
The Treasury Department, which administers the new credit,
did not dispute the calculations.
``The small-business tax credit was designed to provide the
greatest benefit to employers that currently have the hardest
time providing health insurance for their workers--small,
low-wage firms,'' said Michael Mundaca, assistant secretary
for tax policy. ``Small employers face higher premiums and
higher administrative costs than large firms and in many
cases cannot afford to provide coverage.''
Small business owners are a pivotal constituency in the
fall congressional elections, and Democrats are battling to
win them over. Major benefits of the health care law--
competitive insurance markets, more stable premiums and a ban
on denying coverage to those in poor health--don't take
effect until 2014. But the health care credit is available
starting this year.
It can be a boon for smaller companies paying lower wages.
Betsy Burton, owner of The King's English Bookshop in Salt
Lake City, estimates that she will get a credit of roughly
$21,000 against premiums of about $67,800. She has 11 full-
time equivalent employees averaging $26,100.
``What it means is that I can afford to carry this
insurance and insure people's families,'' said Burton. ``I
was afraid that we were fast approaching a time when I would
have to choose between insuring my employees and closing my
doors.''
Burton believes offering health insurance is the right
thing for an employer to do--and also makes good business
sense because it helps her retain valued employees. Except at
the beginning, she has provided coverage for most of the 33
years the bookstore has been in business.
Slightly more than a third of companies with fewer than 10
employees offered coverage in 2008, down about 10 percent
since the start of the decade, according to an Urban
Institute analysis.
Hoffman, the furniture store owner whose business missed
out on the credit, says he understands that lawmakers writing
the
[[Page S6871]]
health care legislation had a limited amount of money to work
with. But his company's premiums rose 15 percent this year,
and it's a struggle to keep paying.
To get the most out of the new federal credit, Hoffman said
he'd have to cut his work force to 10 employees and slash
their wages.
``That seems like a strange outcome, given we've got 10
percent unemployment,'' he said.
____
Dear Mr. Wyatt: I am contacting you as I believe you are
the individual who assists Sen. Grassley on tax matters
connected to his Senate Finance Committee position.
I am writing you to comment on the Small Business Health
Care Tax Credit.
Some brief background about our company:
We are a small manufacturer of abrasives in Wilton, IA,
currently employing 17 full-time people.
Our major competitors are the Chinese, Korean, and Japanese
sandpaper manufacturers and the recession has hit us hard.
We provide some of the following historical benefits to our
employees:
We pay 100% of all employees' health insurance premiums;
We provide $40,000 of life insurance to each employee;
We contribute approximately 14% of each employee's
compensation into a profit-plan for their retirement;
Paid vacation;
Approximately 2 weeks paid time off during Christmas which
does not count against an employee's vacation time;
What the recession has done to us:
Like many small businesses, we are losing money;
This has caused us to hire some workers through a local
temporary business to replace full-time employees as we have
turnover and as we try to expand into other areas to keep our
business going;
For the last 2 years we have only been able to contribute
the 3% safe harbor to the profit-sharing plan (for at least
the prior decade we contributed the full roughly 14% of
compensation to the profit-sharing plan);
We were forced to change the safe harbor profit-sharing
contribution from a 3% mandatory to a matching type plan
since a few of the temporary workers will have met the 1,000
hours/12 month rule--essentially punishing the full-time work
force as we don't have the discretionary cash to make the
contributions for the temps (a whole other tax issue for
small businesses); and
We have continually had to reduce some health benefits (via
increasing deductible to $1,000; however, we continue to pay
100% of the premium cost).
Now back to the Small Business Health Care Tax Credit.
Early on I had high hopes that the credit would be quite
helpful in defraying the health care premium costs. We
currently pay $11,410.39 per month in Wellmark BCBS premiums
(nine on the single plan at $413.67/month and eight on the
family plan at $960.92/month) for a total annual premium cost
of $136,924.68; and this is before anyone gets sick as we
self-insure for the co-insurance. Our annual premium increase
will be communicated to us by Wellmark about August and I
anticipate another 20+% jump.
However, now some of the details of the credit are leaking
out. Today I received the attached letter from our CPA firm,
RSM McGladrey. I point you to the limitations and phase-out
of the credit. Are you kidding me? By the time I gather all
the required information, pay RSM McGladrey to calculate all
the phase-outs, the resulting credit will not even cover the
expected annual premium increase from BCBS!
What small business is this helping? This is about like all
the back to work credits, or whatever they are called, which
we concluded with RSM McGladrey are not worth the manpower
costs to fully investigate and gather the information.
This credit is worthless. If Congress thinks this is going
to encourage small businesses to keep providing health care
for their employees, they are grossly mistaken. It just isn't
meaningful enough to even enter into the equation in making a
decision of what to do for my employees.
Effective today, we can no longer hire someone and provide
them with subsidized health insurance beyond what is required
by law. We hope to continue with existing employees, but
clearly, with what little bit I know about the Health Care
Act, come 2014 we are dropping our health plan; if not
sooner.
I would hope as Senator Grassley's Finance Committee tax
assistant, someone who would understand ``the devil in the
details'', you will pass on to him my frustrations. Such
frustrations with respect to the Small Business Health Care
Tax Credit being, but not limited to: (1) not well thought
out or discussed; (2) ridiculously complex for a small
business to understand and implement; and (3) once again,
Congress' over selling/promising the benefit of.
I would greatly appreciate if you would convey my thoughts
on this matter to Senator Grassley to help him understand
what is happening with small business on this issue.
Sincerely,
Steven D. Yeater,
Co-Owner.
____________________