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How the Baucus Bill Kills Jobs

Posted By Robert Book On September 25, 2009 @ 9:48 am In Obamacare | Comments Disabled

Proponents of the health care reform bills currently under consideration in Congress claim that the cost of insuring the uninsured will be paid for by taxes on the rich, and by employers, who will be required to shoulder “responsibility” for their employee’s health insurance. The reality is that these provisions will act as an extremely regressive tax on the working poor, substantially reducing their take-home pay and in some cases eliminating their jobs altogether.

All the House and Senate drafts of health care reform include so-called “employer mandates” or “pay or play” provisions. The details vary somewhat, but all require employers to either “play” by providing health insurance for their employees or pay part of the premium or “pay” a special tax for not providing insurance, even if the employee declines it.

However, these proposals actually result in hefty tax increases on employers that will be paid for primarily by low-income and middle-income workers in the form of lower pay and lost jobs. Businesses do not have unlimited funds to dole out based on their own beneficence or the government’s instructions. When an employer decides whether to hire an employee and how much to pay, the employer has to consider the full cost of employing that person. That full cost includes not only cash wages and the employer’s cost of providing benefits, but also the employer’s share of any employment-related taxes, such as the Social Security and Medicare taxes. When the costs of benefits or payroll taxes increase, the amount of money paid to employees has to be cut to make up the difference. If the employer instead satisfies the mandate by spending more on health insurance, the effect is the same. Either way, the employee’s take-home pay has to be cut.

Even worse, employers who lack enough revenue to pay minimum wage plus the cost of other benefits and the new taxes would be forced to lay off their lowest-paid employees to comply with the law.

For example, for the House bill (H.R. 3200), Mark Wilson has calculated [1] 5.2 million jobs at risk, because current wages minus the cost of the mandate would be less than the minimum wage.

The Baucus plan would have another, even stranger effect on hiring. Because the subsidy amount is based on family income and family size, not the wages that the employer pays, employers would naturally prefer to hire workers from higher-income families with fewer children. For example, hiring a single parent could incur a substantially higher tax penalty than hiring a worker with a working spouse or parent(s), or a worker who is single and childless. Under the Baucus bill, business would be discouraged from hiring those who need the jobs the most.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/09/25/how-the-baucus-proposal-kills-jobs-especially-for-middle-class/

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[1] Mark Wilson has calculated: http://www.heritage.org/Research/healthcare/bg2312.cfm

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