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Graves, Snowe Request GAO Study on Small Business Health Care Tax Credit, Report Proves Ineffectiveness

Washington, May 21, 2012 -

House Small Business Committee Chairman Sam Graves (R-MO) and Senate Small Business and Entrepreneurship Committee Ranking Member Olympia J. Snowe (R-ME) today issued the following statement on a GAO report they requested, which shows the ineffectiveness of the health care tax credit for small businesses: 

“As we honor America’s small firms during National Small Business Week, it is discouraging that so many small companies are still burdened by compliance with the health care law,” said Congressman Graves and Senator Snowe. “The President claimed that the health care tax credit would help small businesses deal with the weight of this massive law, but, according to this study, it has been grossly ineffective. This GAO report confirms that many small firms haven’t claimed the tax credit because it is too complex and its temporary nature didn’t provide a significant solution to their long term compliance problems – a regrettable, but all too foreseeable conclusion. 

“During the health care reform debate, the President’s Council of Economic Advisors estimated over 4 million small businesses would be eligible for the credit. Despite an aggressive outreach and publicity campaign by the administration, including mailing out millions of postcards that erroneously told small businesses they may be eligible, only 170,300 small employers claimed the tax credit in 2010. The health care reform law is simply bad policy that is holding small businesses back, and therefore should be repealed. The data shows that a miniscule tax credit won't change this dynamic.”

On April 18th, the House Small Business Committee 
held a hearing on upcoming tax increases that will affect small businesses, specifically the expiring tax rates at the year’s end; and health care reform law taxes, including the employer mandate, the Medicare payroll surtax on investment income, the Medicare payroll tax increase, and many others.

Highlights of the GAO report titled, “Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity”:

• Far fewer small employers claimed the credit for tax year 2010 than were thought to be eligible (page 9).
• A significant majority of small businesses were either unaware of the tax credit or decided against claiming it. According to estimates by the Kaiser Family Foundation and the NFIB Research Foundation, approximately 50 percent of small businesses were aware of the credit, yet the majority of those firms chose not to claim it (page 15).
• The credit was not large enough to incentivize employers to begin offering insurance (page 16).
• An estimated 83 percent of very small employers do not offer health insurance, and this tax credit was not large enough to incentivize employers to offer it (page 3).
• Of the small employers who claim the credit, 83 percent could only claim a partial credit (page 10).