July 28,2010

Health Care Tax Credit for Small Businesses Has Been Oversold

M E M O R A N D U M

TO:     Reporters and Editors
RE:     small business eligibility for health care tax credit
DA:     Wednesday, July 28, 2010

Senator Chuck Grassley issued the following statement about the Families USA July 2010 analysis, which includes state-specific data, about the small business tax credit established by the Patient Protection and Affordable Care Act of 2010.  Grassley is Ranking Member of the Senate Committee on Finance, which is responsible for health care legislation.

“The claim made this week by Families USA about a small business tax credit for health care doesn’t add up.  The advocacy group said over 90 percent of small businesses in Iowa would be eligible for the tax credit created by the new health care law.  The analysis of the nonpartisan Congressional Budget Office doesn’t support that assertion, and CBO is the official scorekeeper for legislation in Congress.  And, the National Federation of Independent Business, the largest trade association representing small business, determined that only 30 percent of small businesses in Iowa would qualify for the new law’s tax credit.  Why the big difference?  The Families USA study did not factor in the requirement in the law that says a small business must pay more than half of its employees’ premium costs in order to qualify for the tax credit.  When that’s considered, the Congressional Budget Office estimates that only 3 million small business employees nationwide would benefit from this tax credit in 2016.  Adding insult to injury, determining eligibility for the tax credit is extremely complicated, as shown by the chart below.  I hear directly from small business owners in Iowa who had high hopes about the tax credit helping them.  After they see the fine print, their frustration can be summed up by the letter I received from Steven Yeater of Wilton, Iowa.  He’s the co-owner of a products finishing business, and he told me:  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].’  It doesn’t do small business owners or their employees any good to have promotional studies misrepresent reality the way the Families USA report does.”