ObamaCare Tax on Employers Likely to Backfire

In 2003, Congress passed the Medicare prescription drug benefit.  However, in order to discourage American businesses from immediately dumping all their drug plans for retirees, Congress gave them a tax break equivalent to 28 percent of the cost of the plan.

Yet in one of many little clauses in a 2,000-page bill, Congress voted to subject the 28 percent tax benefit to the corporate tax rate of 35 percent.

  • About 3,500 businesses presently claim the 28 percent tax break.
  • The cost to taxpayers of that 28 percent benefit is about $665 per person.
  • The cost to taxpayers of equivalent Medicare coverage is about $1,200 per person.
  • This means adding more to the ranks of Medicare as corporation’s drop their retiree drug plans and roughly doubling the cost of covering an estimated five million retirees.

Full Washington Times editorial by Mark Steyn here.

Comments (5)

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  1. Devon Herrick says:

    The tax break to encourage employers to continue offering drug benefits to seniors is reduced, while the donut hole is phase out. This will boost the cost to taxpayers in the long run.

  2. artk says:

    The editorial ignores the fact that the vast majority of retiree prescription drug benefits are part of union collective bargaining agreements. Continuing those benefits is not optional. With or without the tax rebate, they have to continue those benefits.

  3. Brian Williams. says:

    Estimating the impact of these higher taxes, many businesses have notified shareholders that profits will be lower than originally forecast.

    Apparently not understanding how a market economy works, Henry Waxman has summoned several businesses (e.g., AT&T, Caterpillar) to a hearing on April 21 to explain how higher taxes could possibly lead to lower profits.

  4. Larry C. says:

    artk: those agreements are renegotiated periodically. But let’s suppose that they were not. What’s the point of taxing employers in the middle of a deep recession?

  5. John Ballard says:

    Are we moving toward uncoupling employment from health insurance?
    It would take a load off the balance sheets in a global market where other countries furnish national universal health care.
    This study from AEI advances some interesting ideas that never got very far.