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Union Leader: Study: NH business health tab would top $215m

By John DiStaso

New Hampshire's business community would pay $215 million to $229 million to comply with a Democratic-sponsored health care reform bill that has advanced in the House of Representatives, a new study by two conservative economists says.
J. Scott Moody and Dr. Wendy P. Warcholik, writing for Republican activist Fred Tausch's grassroots STEWARD group, conclude that H.R. 3200 contains "hidden penalties for New Hampshire businesses" that will hurt their ability to compete for jobs in an international market.
They criticize the bill's so-called "play-or-pay" mandate and its provision to impose three new marginal brackets to the federal income tax to partially pay for health care reform.
"In the long run," say the authors, "this will discourage job creation in New Hampshire and reduce access to quality health care."
Moody and Warcholik are a husband and wife team from the small New Hampshire town of Haverhill. Both have been on the staff of The Tax Foundation and Moody has also worked for The Heritage Foundation and numerous state-based think-tanks.
Warcholik has also worked at the Bureau of Economic Analysis in Washington, D.C., Virginia's Department of Medical Assistance Services and has taught economics classes to graduate students.
Play or pay for employers
Moody said the report was started while the Senate bill voted on by the Senate Finance Committee yesterday was still being developed.
He said that "it's like trying to hit a moving target" to focus on a particular bill, but when they began writing the report, about a month ago, H.R. 3200, named America's Affordable Health Choices Act of 2009, "was the furthest along" and was "the only definitive piece of federal legislation on the topic."
The bill, sponsored by U.S. Rep. John Dingell, D-Mich., has passed through several committees but has yet to be voted on by the full House.
The bill's employer mandate provision, also known as "play-or-pay," requires employers to offer or contribute to employee coverage or pay an excise tax equal to between 2 and 8 percent of each worker's wages into a Health Insurance Exchange Trust Fund.
According to, a project of the Robert Wood Johnson Foundation, the exchange fund is the vehicle through which individuals and smaller employers could purchase health insurance from among an array of private options and a public option, all meeting certain federal standards.
Moody and Warcholik report that according to the Internal Revenue Service, there were 156,568 businesses in New Hampshire in 2008, which is less than a half of a percent of the more than 36 million businesses nationally.
They cited Heritage Foundation figures showing that the mandate will cost businesses nationwide between $49.4 billion and $52.7 billion, and say New Hampshire's share will be $215 million to $229 million.
While it may appear that the cost would average about $1,400 per New Hampshire business, Moody said it is not that simple.
He said the cost per business would depend on the number of employees each business has, as well as the type of business it is.
He said that some businesses, "most of them in the sole proprietorship category," would not be subject to the mandate, while others would be subject to a cost far greater than a simple average would indicate.
To calculate per business costs, he said, "I would need more specifics on payroll and how much each business is now spending on health insurance."
The tax impact
To fund part of the bill's cost of a public option, as well as premium credits for low-income individuals and an expansion of Medicaid, the bill would add a 1 percent surtax on adjusted gross income between $350,000 and $500,000, a 1.5 percent surtax on income between $500,000 and $1 million and a 5.4 percent surtax on income between $500,000 and $1 million.
Moody and Warcholik say, "While these tax hikes are in the individual income tax, it will affect the vast majority of New Hampshire's businesses because every business, except C-corporations, file through the individual income tax."
Relying on numbers from The Tax Foundation, they say that nearly three-quarters of taxpayers in the top 1 percent report some business income.
"It's really an aspect of the tax code that most people don't realize, that so many businesses file through the individual income tax," Moody said. "The way our tax code has evolved, many businesses do in fact file individual returns."
"Therefore," the report says, "higher marginal income tax rates on taxpayers earning more than $350,000 is really a disguised tax hike on businesses."
Moody and Warcholik say the H.R. 3200 would take effect in 2011, the year after the expiration of President George W. Bush's tax cuts.
As a result, they say, New Hampshire businesses in 2011 would face a federal marginal income tax rate of 47.25 percent, which would rank it in a nine-way tie for 42nd place among the 50 states and 30 countries in the Organization for Economic Cooperation and Development (OECD).
The state's rate would be higher than Canada's rate of 46.41 percent.
Unintended consequences
The report says the federal tax rate illustrates "how much of New Hampshire's business competitiveness is driven by federal tax policies."
Moody, commenting on the report, said, "When we're talking about this magnitude of change, it is always a bad time to be levying these burdens on our businesses when international competitiveness is such a critical part of our economy."
Moody noted that even if the final health care bill is different than H.R. 3200, the employer mandate and income tax surcharge are "central to nearly every serious proposal that has been discussed to date."
Under the separate bill passed by the Senate Finance Committee yesterday, although employers would not be required to cover their workers, they would have to pay a penalty for each employee who sought insurance with government subsidies, according to The Associated Press.
Moody said that even if the provisions change, "One thing that will not change is that there will be a lot of unintended consequences in any bill that's 1,000 pages."
The reports recommends that members of the state's congressional delegation "reflect long and hard before working against the long-term efforts of New Hampshire's state and local governments to keep the state economically competitive."
Commenting on the report STEWARD organizer Tausch said, "We all know that Democrat health care proposals are bad for patients, but this report reveals how ruinous their plans would be for Granite State businesses."
Tausch formed STEWARD, an acronym for Save The Economy Without Accumulating Record Debt, earlier this year to focus on the stimulus bill but it now has a broader focus on other aspects of government spending.

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