Elizabeth Warren Sees Nothing Wrong With Screwing With Markets
She's got a plan that is sure to keep small businesses from expanding -- though that's just a side-effect.
She intends to give a sort of welfare to the smaller businesses by giving them a break on health insurance costs for employees that bigger businesses don't get. Basically, she's penalizing big businesses for their success -- or giving businesses on the cusp of paying or not paying reason to lay off employees to save money.
Nihal Krishan writes at the Wash Ex:
Elizabeth Warren's plan for financing "Medicare for all" could have the unintended consequence of giving small businesses an advantage over rivals if they keep their employee headcount below 50.The wrinkle in the plan comes from a provision requiring small businesses that meet or exceed the 50-employee threshold to make "Employer Medicare Contributions" equal to the national average cost of healthcare per employee for every employee at that company -- about $15,000, according to the National Business Group on Health's 2019 survey.
That feature would give small businesses with fewer than 50 employees a significant advantage because their employees would all have health insurance via the federal government, but they would not have to pay the "Medicare contribution." Meanwhile, rivals with more than 50 employees would have to pay the tax.
The effect would be that firms with fewer than 50 employees would be able to pay higher wages than competitors over the 50-employee threshold, incentivizing them not to grow above that size.
..."Small businesses -- who often suffer when competing for employees because they can't afford to offer health care coverage -- would no longer be at a competitive disadvantage against bigger businesses," the campaign boasts in its description of the financing plan. (The Warren campaign declined to comment on the record for this story.)
Yet that feature of the plan would be a curse, rather than a blessing, for businesses near the 50-employee threshold that would like to expand.
"Everyone will do everything possible to not hit the [50-person] threshold," said Jason Duff, CEO of Small Nation, which owns a number of small businesses in Bellefontaine, Ohio.
"The idea of growth and getting bigger as you get more successful will be diminished, and that's unfortunate," said Duff. Duff said he spends about $400,000 on healthcare for 25 employees, which is approximately 15-20% of his annual budget.
The major problem entailed by the provision is that it would not be just a marginal tax on the 50th employee, but instead would apply to all previously hired employees. "If you hit the 50-employee threshold, then all of a sudden you're hit with like a $500,000 tax," said Burman. "That 50th employee would have to be a really great employee to justify hiring them!"
I don't dispute that the outcome will be as you describe, but I take issue with this:
She is not penalizing anyone. She is rewarding someone else. If I choose to donate to a particular charity I like, I'm not penalizing all other charities I don't like. I'm rewarding the charity I do like.
With that out of the way, I wonder if this system would better without a hard cutoff for number of employees.
Say each employer pays 2% of the cost for every employee. An employer with only 1 employee, say a Mom 'n Pop store with a cashier, pays 2%. Should their business grow and they need to hire someone else, they pay 4%.
An employer with 49 employees would be paying 98%. And one more employee, and they would be paying the full 100%.
Probably a terrible idea. I guess I'm just brainstorming here to fix Warren's idea. I'm not even informed enough on this to know if Warren's idea is even good enough to be salvageable.
Patrick at November 18, 2019 12:51 AM
This gives companies another reason to maintain their employee count under 50.
Tasha at November 18, 2019 5:35 AM
On a strictly human level, it's difficult not to attribute the worst possible motives to this woman.
When we'd expect such rich knowledge of history's flow and human nature to have been aggregated into this thoroughly modern American woman, she can be counted on to propose the worst possible courses for the lives of others, even though she's worth 12 million dollars with federally provided health care.
Crid at November 18, 2019 6:13 AM
There are a lot of existing regulations that impose a big step function in compliance costs as a business grows. And yes, they discourage growth. Some years ago, I worked for a small business that had been fairly successful in government contracting. However, the company was approaching 400 employees, which was a threshold at which the company would no longer be eligible for small business set-aside contracts. To avoid that, they spun off part of the business into a separate company. The employees of the spin-off made that happen with a highly leveraged the buyout, which meant that after the buyout, they had to pay out a significant portion of revenues as debt service. When a downturn in business came along, they could't make the debt payments and the lenders pushed the company into bankruptcy.
Cousin Dave at November 18, 2019 6:50 AM
The 50 employee threshold isn't a new one. She likely pulled it from Obamacare. And yes it does cause problems.
Patrick, while I don't like the whole medicare for all thing Warren is pushing your idea at least avoids a fixed step function. It would have a smaller impact on things. Or at least a less noticeable one.
Ben at November 18, 2019 7:29 AM
It's not 50 employees. It's 50 full-time employees. I wonder what the effect of that will be?
Curtis at November 18, 2019 9:02 AM
This gives companies another reason to maintain their employee count under 50.
Tasha at November 18, 2019 5:35 AM
What is someone who works for you, but is not an employee?
They are called contractors. The government has put too many burdens on employers in general. This is the direction everyone will be forced to go.
Isab at November 18, 2019 9:33 AM
Obamacare has the same requirement for 50 full time employees. The response from many businesses has been to limit full time employees to 49 and keep the rest as part time and contract.
Obamacare also has a different definition for part time. Most laws use 40 hrs/week as a full time employee. Obamacare uses 30 hrs/week to define a full time employee. I expect when we see Warrencare it will do the same.
Quite frankly it looks like Warren just wants to take Obamacare and force everyone to participate. Which is kinda funny. IRA keeps quoting Lincoln that the best way to get rid of a bad law is to strictly enforce it. That applies here pretty significantly. Obamacare is very popular with two groups. Near retirement age contractors and more significantly those who aren't covered by it. If you are under 50 and affected by Obamacare you probably hate it. Medicare for all would gift that hate to all those voters who currently have corporate group health plans.
Ben at November 18, 2019 10:15 AM
"Patrick, while I don't like the whole medicare for all thing Warren is pushing your idea at least avoids a fixed step function. It would have a smaller impact on things. Or at least a less noticeable one.
You could fix the entire thing with a credit model.
Radwaste at November 18, 2019 11:41 AM
Actually, her proposal will harm small businesses. And meanwhile, the corporate giants smile. Just like they smiled when Obama implemented his health care scheme.
Small businesses now have an incentive to stay small. Big businesses will never have to look over their shoulder.
They'll never hire the plus one that eliminates their subsidies. That means they'll never become the next Amazon/Walmart/Google. The head of the company will never be a billionaire, and the ground floor employees (and several more below) will never become millionaires, like with Home Depot.
I R A Darth Aggie at November 18, 2019 11:54 AM
Also: in addition to the 50-employee cap, how long until the special benefit would be also conditional on a business being in a politically-favored industry, or contributing to 'woke' lobbying groups?
David Foster at November 18, 2019 3:24 PM
That magic number of 50 employees isn't new to Warren, nor is it new to Obamacare.
Many US employment laws passed by congress are written to exclude companies that have less than 50 employees. And, it isn't when they hire that 50th person exactly; they are allowed to hire a few more than 50 but have some sort of time limit (I seem to recall it being 20 weeks or more of over 50; but, I'm too lazy to look it up right now). So, if they have 50+ at a given time; but, within a few weeks they have less than 50 the laws (such as FMLA) do not apply.
Having worked for small companies I have often seen management deal with this "issue"(not just Warren's suggestion) of what all kicks in when the company exceeds that limit.
It starts a whole new conversation amongst managers/owners: "yes, we do need a couple of more people in that department to help the solo employee; but, just how badly do we need them? Can we get others from other departments to help out in a pinch? Can we really afford them - not just for what they would cost; but, the overall costs to the company with all these laws now applying?"
So, Warren isn't the only one stifling business; this has been the way congress has been working for a long time.
As Amy has said so many times before what they need to do it divorce healthcare insurance from employment. But, such an idea is more of a pipe dream than reality.
charles at November 18, 2019 5:33 PM
While these repressive "progressives" make grand claims to care about the poor and underemployed, these proposals, like Obamacare, create a huge barrier to upward mobility by incenting companies to fill their staffing needs with legions of part-timers and contractors. This exacerbates the lousy tendency to view employees as interchangeable cogs.
One can't get promoted if one the cost to the company is too high.
wambut at November 19, 2019 7:49 AM
There are similar problems with individuals and special tax/welfare treatment. Somewhere around $35,000 income, your tax jumps, you don't get benefits, etc. It is a cliff.
cc at November 19, 2019 9:32 AM
I see a lot of large corporations breaking up into pyramidaly arranged 40 person subsidiaries and 40 subcontracting companies, both with a lot of subcontracting employees without benefits.
Just another project of the Neo-Marxist progressive Demoncrats intended to finish off the middle class and make every one equally destitute and government dependent, so that every one will be cruelly equal, except of course for the elite ruling Demoncrats, who will be more equal than every one else.
Bobby Mephiteas at November 22, 2019 3:34 PM
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