[Congressional Record (Bound Edition), Volume 156 (2010), Part 11]
[Senate]
[Pages 15282-15285]
[From the U.S. 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.

[[Page 15283]]

  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.
  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

[[Page 15284]]

     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 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.

[[Page 15285]]

       ``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 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.

                          ____________________