During the latest stop on the Ben Nelson Excuse Tour (an interview with the Fremont Tribune, which Nelson himself requested), the Nebraska senator said, “I think it was a mistake to take health care on as opposed to continuing to spend the time on the economy.” Nice try, Ben. The real mistake is that the health-care bill Nelson just voted for is opposed to fixing the economy, particularly with respect to jobs and wages.
Contra Nelson, the Democrats’ decision to focus on health care instead of the economy wasn’t just a sin of omission. It has actively created a drag on the recovery, in two ways. First, the months-long debate over the bill created conditions of great uncertainty for potential entrepreneurs, who drive job creation. And second, what we do know about the bill — that it would impose new penalties, taxes, and per-employee costs on small and medium-sized enterprises — has discouraged new hiring and start-ups.
Regulation shot above insurance, big business, and inflation as a concern for small-business owners in a recent survey by the National Federation of Independent Businesses (NFIB). “The ‘turbulence’ created when Congress is in session is often debilitating, this year being one of the worst,” the authors wrote in a commentary to the report. “Themes including ‘tax more,’ ‘tax the rich even more,’ ‘VAT taxes,’ higher energy costs due to Cap and Trade, mandates and taxes for health care, threats of ‘stimulus II,’ incomprehensible deficits . . . The list goes on and on.”
Though health-care legislation is just one item on that list, it’s a big one, especially for small businesses. To start with, there are considerable differences between the House and Senate versions of the health-care bill concerning the per-employee penalties businesses will have to pay if they fail to offer a “qualified” health-insurance plan to their workers. In the House version, employers that do not offer qualified coverage would have an extra 8 percent added to their share of the payroll tax for each worker. In the Senate version, employers would only have to pay a penalty of $750 per employee (the equivalent, on average, of an extra 1.5 percent payroll tax per worker).
Then there’s that word “qualified.” The House version requires employers to pay at least 72.5 percent of the plan’s cost for individuals (65 percent for families) and meet a battery of plan-benefit and consumer-protection mandates. The Senate requirements are looser, but penalties on all employees are triggered if even one employee leaves the plan to take subsidized insurance on the new government-sponsored exchange. In addition to this, premiums are highly likely to rise as a result of this legislation. The proposed cost-control measures, in the words of a writer who supports the legislation, amount to little more than “a battery of small scale experiments.”
Now put yourself in the shoes of an entrepreneur with a great idea for a start-up. Put aside all the other taxes and regulations the Democrats have proposed since Obama took office, and focus just on health care. With such large gaps between the penalties, taxes, and mandates in the two versions, wouldn’t you want to wait and see which version prevails before deciding whether to quit your job and start your business? I would. And regardless of which version prevails, you might also want to wait and see what happens to premiums before you jump into the market. If they go up, as anticipated, you might be better off staying with your current employer — provided that your current employer hasn’t already started taking the higher cost of premiums out of your wages, or fired you to save money.
To understand why this is important, consider that a recent study from the Kauffman Foundation found that start-ups and new ventures account for nearly all net U.S. job creation. Scott Shane, a professor at Case Western Reserve University who specializes in entrepreneurship, explains that job losses and gains elsewhere in the economy tend to “net out,” but that “the big source of job creation occurs because people start businesses. For every business born this year, there’s no corresponding negative.”
It is all the more dispiriting, then, to consider that in the first quarter of 2009 (the most recent for which we have data), the number of jobs gained from opening and expanding businesses fell from 6.7 million to 5.7 million — the lowest level since the Bureau of Labor Statistics started keeping such statistics in 1992. There is no doubt that weak consumer demand has kept entrepreneurs on the sidelines. But as economists Gary Becker, Steven J. Davis, and Kevin M. Murphy have noted, a number of survey statistics — in addition to the NFIB survey mentioned above — implicate regulatory uncertainty as well.
Would we be better off today if the Democrats had focused on the economy instead of pushing ahead with their version of health-care reform, as Nelson suggests? Not if the stimulus is any indication of what we would have gotten. But the all-out push to governmentalize health care was worse than doing nothing to fix the economy — it actually worked against the recovery by adding to an already uncertain regulatory climate the threat of higher costs and more regulations for small businesses.
— Stephen Spruiell is a staff reporter for National Review Online.