Sec. 512. Health care contributions of nonelecting employers
Section 511 describes the employers' option to offer an insurance package to their employees. If an employer chooses not to offer an insurance package they must instead pay a payroll tax. Also, if an employer chooses to offer an insurance package but the package doesn't comply with the set of establish standards, then they will be responsible to pay an excise tax
Section 512 gives further details that describe the payroll tax in the previous section 511. The payroll tax employers will be expected to pay if they choose not to offer a compliant insurance package is set to be 8%. However, small businesses with payrolls less than $500,000 may be exempt from the payroll tax or accountable for an adjusted payroll tax proportional to 8%. Employers with payrolls greater than $500,000 will be responsible for the full amount of the tax.
I believe there are some definite strong points to the provisions included in sections 511 and 512. First, they recognize small business and attempt to protect them from an unfair disadvantage that a full 8% tax might impose. Second, these stipulations attempt to minimize free riders. The Affordable Health Care for America Act is expected to cost 940 billion dollars over a ten-year period and it is important that the workforce engages the burden as a whole since it benefits the entire nation in terms of sustainability and productivity (Brown & O'Connor). Third, section 511 establishes the existence of standards for employer-offered insurance that will ensure employees are receiving an adequate-quality package.
Some shortcomings of the two provisions are definitely evident. While the passing of HIPAA in 1996 was designed to address the negative affect of an employer-based insurance model on job mobility, it is apparent that this legislation is designed to continue with that trend. I view the relationship of employer and insurance as a barrier-to-exit. As I've mentioned in a previous blog posting our nation has long operated under free market fundamentals and the tether employer-based insurance creates between people and their jobs becomes obvious in a workforce that is not fluid and mobile, which are advantageous traits in competitive markets. There might also be a disincentive for small businesses to grow beyond a certain point to maintain a tax advantage. The 2010 Small Business Attitudes & Outlook Survey revealed that 80% of small businesses polled expect significantly or moderately growth in the next year but of those only 39% intend to hire additional employees. The survey also revealed that due to economic pressures 22% of small businesses have been forced to lay off employees. Small businesses may choose to stay smaller to avoid additional taxes. Finally, I'm also concerned with the payroll being used as the determining variable for the tax. $500,000 is a relatively small sum as far as wages go, especially in the service industry. It's likely that low capital, service oriented small businesses may operate with payrolls greater than the $500,000 mark but still only recognize small profits.
According to Small Business Administration: Office of advocacy, small businesses dominantly account for the majority of businesses in the U.S. and for half of the national GDP. These contrasting statistics illustrate the balance between a potentially substantial tax revenue to fund an important public program and the vulnerability of small businesses in a turbid economic cycle.
"79 Percent of Small Businesses Revealed a Confident to Neutral Economic Outlook in 2010 - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. 12 Apr. 2010. Web. 05 May 2010.
O'Connor, Patrick, and Carrie B. Brown. "Congressional Budget Office Releases Health Bill Estimates - Patrick O'Connor and Carrie Budoff Brown - POLITICO.com." Politics, Political News - POLITICO.com. 18 Mar. 2010. Web. 05 May 2010.
"Office of Advocacy - Small Business Economy -- A Report to the President, Produced by The Office of Advocacy, Office of Economic Research." Small Business Administration. U.S. Government: SBA: Office of Advocacy, 2009. Web. 06 May 2010.