Post & WSJ repeat bogus "hiring tax" claim

Just like in 1993-1994, the prospect of health care reform has unleashed a wave of misleading claims and bad reporting.

The latest example is the suggestion that a proposal to levy a tax on employers who don't provide health care for their employeees would hinder the economic recovery, which was recently made by GMU's Brian Caplan. But as Kevin Drum pointed out, the provision wouldn't go into effect until 2013 (see pp. 179-188 of the House bill PDF) -- long after the recession is likely to be over.

Unfortunately, the meme is likely to continue to circulate. Here's the New York Post making an identical claim in an editorial Thursday:

Having abandoned any notion of lightening the load with spending cuts, House Democrats have put forward a 1,000-plus-page proposal dripping with new taxes, surcharges and fees.

The biggest losers? Small businesses -- companies with as few as five employees, who'll have to pay a penalty of up to 8 percent of income unless they provide their workers with health insurance.

Now, these are the same businesses the administration thinks will hire workers laid off during the recession. But why would they do that if Washington effectively imposes a hiring tax?

And here's the Wall Street Journal repeating the claim in an editorial today:

Unemployment is at 9.5% and rising, but Democrats will nonetheless impose a new eight percentage point payroll tax on employers who don't provide health insurance for employees. This is on top of the current 15% payroll tax, and in addition to a new 2.5-percentage point tax on individuals who don't buy health insurance. This means that any employer with more than $400,000 in payroll would have to pay at least 25% above the salary to hire someone.

Note how both the Post and the WSJ suggest that the tax would take effect immediately (and therefore prolong the recession) without ever making the claim directly. In this way, they can maintain plausible deniability while still misleading the vast majority of their readers.

Comments

[Rob]

Your point is a fair one, but it overlooks the fact that small businesses that are considering expanding their workforces will probably take into account costs they know will attach in 2013 and thereafter. You're familiar with universities (which are of course not small businesses). Do they expand the faculty with the idea that in three years they can simply contract it again once additional costs kick in? God, I hope they're more intelligently managed than that.

The truth is, over recent decades we've made it increasingly disadvantageous to hire permanent employees. Hiring, promotion and firing decisions all carry the risk and expense of EEO complaints and civil actions under evolving employment law standards. Activities on the job can be a basis for harassment claims. A reliable workforce is more difficult to maintain because of mandated pregnancy and family leaves. Employees subject the employer to administrative and regulatory recordkeeping and reporting requirements. Add to these disincentives to hire employees the proposed health care law.

In recent years politicians and others have expressed concern over the trend of companies (1) to use independent contractors rather than to hire permanent employees, and (2) to send jobs overseas. But this is the natural consequence of policies that impose costs and burdens on employers that they're able to avoid entirely by simply contracting for services or outsourcing. To pretend that the proposed health care law will not add to this trend is either naive or disingenuous.

[David]

There's not much that can be added to Rob's post, but here are a couple of other considerations:

-- In the long run this provision will put an additional burden on small business going forward. Small businesspersons are right to be concerned, as are those who might hope to work for a small business, or to buy products or services from a small business, or sell products or services to one.

-- Brendan has no guarantee that the current recession will be over by 2013. In fact, the Democratic health care proposal makes more likely that it will last that long.

-- We can't necessarily count on an inception date of 2013. The bill could be changed during the legislative process. Or the new tax might be moved up after this bill is passed, particularly if the plan turns out to be under-funded (a safe bet). Also, over time the 8% assessment rate might be increased (another safe bet).

Granted these are hypothetical possibilities. Nevertheless, if they are to be avoided, the bill has to be defeated now. Once Congress passes health care it will be too late to avoid all the new taxes that will eventually be needed to pay for it.

[MartyB]

Because it won't go into affect for 4 years, it shouldn't be considered to have any negative impact today?

So Brendan, if you have an adjustable rate mortagage - and assume it's the only kind of mortgage available - that will suddenly cost significantly more in four years, you won't make any economic decisions to deal with this future event?

You won't spend less and save more to cover the future cost?

Or you won't decide to move into a smaller house with with a smaller payment to lessen the impact?

Hmm, if others are faced with the same decisons, could the actions incentived by the structure of the future penalties have broad economic consequences? What if spending is more stimilating economically than saving? What if everyone wants to sell larger homes and buy smaller ones? Would that have no affect on the economy?