Obamacare Underwhelms Yet Again
Today the Treasury’s Inspector General for Tax Administration released a report regarding the small business tax credit. Recall that Families USA last year issued a study claiming more than 4 million small businesses could qualify for the credit. The preliminary evidence is now in, and the results are thoroughly underwhelming:
Despite IRS efforts to inform 4.4 million taxpayers who could potentially qualify for the Credit, the volume of claims for the Credit has been low. The Credit was designed to encourage small employers to offer health care insurance. However, as of mid-May 2011, the IRS reported that just more than 228,000 taxpayers had claimed the Credit for a total amount of more than $278 million. While some additional returns can be expected to continue to come in until the extension deadlines later this year, this is substantially lower than the Congressional Budget Office estimate that taxpayers would claim up to $2 billion of Credit for Tax Year 2010.
That means only 5.7% of the small businesses that Families USA claimed would qualify for the credit have actually received it thus far. And why exactly might the credit have such a low take-up rate? The report also makes that clear:
- “The legislation concerning which taxpayers qualify for the Credit and how to calculate the Credit amount is complex.”
- “There are multiple steps to calculate the Credit, and seven worksheets must be completed in association with claiming the Credit.”
- “There is a risk of errors or irregularities occurring when the Credit is claimed or processed. The Credit is new, and both taxpayers and IRS employees will need to acquaint themselves with the rules.”
- “As described above, the rules themselves are complex, making it difficult for taxpayers to follow.”
- “The Credit is refundable to tax-exempt taxpayers, which is a high-risk factor for erroneous refunds. The IRS also had to complete new programming to accommodate the new Form 8941 and identify potential compliance risks.”
- “Taxpayers have been slow to claim the Credit, and both taxpayers and tax practitioners are making mistakes on Form 8941.”
- “Based on the information that was available, we concluded that some claims contained errors or were incomplete.”
It’s entirely predictable that this credit was too complex to be of much assistance to small businesses – Republicans pointed that out more than a year ago. And spending nearly $1 million more in taxpayer funds ($990,000, to be precise) to fund 4 million postcards promoting the tax credit didn’t much help. Based on 228,000 credits claimed, those IRS postcards cost $4.34 for every firm that has claimed the credit to date – making those postcards immensely expensive by any standard.
Of course, while the small business tax credit is having a nonexistent effect on most small businesses, the nearly $800 billion in higher taxes in the law will have an all-too-real effect on America’s job creators. Then there are the premium increases for those small firms that do offer coverage – the law contains dozens of mandates to be implemented over the next several years, each of which could raise premium costs by 1-3 percent. An article in the New York Times highlighted the skyrocketing premium increases faced by small businesses, profiling small firms receiving premium increases of 20, 40, even 60 percent or more.
So while the small business tax credit is doing NOTHING to help most small businesses, other portions of the law are causing significant damage on the entrepreneurs who serve as the engines of economic growth. It’s yet another reason why Obamacare has proved a disastrous recipe for an American economy struggling to grow.