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Thursday, October 29, 2009

It Took Just Minutes To Find Profound Stupidity In Pelosi's Bill

The drafters and supporters of the 1,990-page health care restructuring bill released by Nancy Pelosi this morning really don't understand how business works.

I've had only a few minutes to look at the bill, but one fundamental and profound stupidity jumped out at me.

The bill defines which businesses are subject to the health care tax based upon the dollar amount of employee payroll. There even is a sliding scale right in the bill (section 501, at page 276) which tops out at 8% for businesses with $750,000 of annual payroll. Annual payroll is defined as the "aggregate wages" paid by the employer.

This provision creates incentives for businesses to keep down payroll. One way would be not to hire anyone whose compensation would fall under the definition of payroll under the bill.

In other words, outsource whatever you can. Hire a software engineer in India, or ship manufacturing to China, or structure your business in such a way that you send 1099s not W-2s to the people who work for you (and hire an accountant and tax lawyer to navigate IRS rules on independent contractors).

The message of the bill is that whatever you do, if you want to grow your business without paying the health care tax, do not add employees.

Obama does not understand these provisions. Obama gave a speech this morning in which he stated that these provisions are directed at small businesses operating on thin margins. But these provisions have nothing to do with profit margins. This is a wage-based tax.

Obama does not understand the difference between profit margins and wages. This is exactly what you would expect from someone who always has been on the receiving end of wages, and never had to meet a payroll. Wages are not profits and have nothing to do with the success of a business. Just ask the auto companies.

I don't think Obama and the other Democrats are lying about this aspect of the health care tax. They truly do not understand how the private economy works. In their blissful ignorance they are designing job-killings provisions which they do not understand.

It is not an overstatement to say "be afraid, be very afraid" of this monstrosity.

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  1. What it means to me, a worker at an international company, is that my job will soon be moved to the company's plant in China that makes the same product. It is newer, state of the art, and we have been fearful that and cheaper wages would cause us to close. Thanks to those idiots in Washington, our fate is sealed.
    --Political Granny--

  2. Good quick catch. The use of independent contractors has been on the increase already, and this is likely to accelerate the trend. The bill is also likely to tempt smaller employers to hire people "off the books" and even to lay off employees to avoid reaching the next threshold.

  3. Some days I wish I were still teaching Business Law. On many days, I'd just link to you and open the floor for questions (with appropriate attribution, of course!).

    The last time I got this much material out of current events was the 2000 presidential election. It was almost as much fun as this most recent debacle, and Nancy Pelosi is lots more entertaining than Dennis Hastert. Usually.

  4. The fact remains that this bill is in all likelihood unrelated to what will become law,

    That will be the result of management reconciliation in some unrelated legislation.

    See the recent definition of assault of specified people as "assault"--adding only the suppression of the Constitutional prohibition against double jeopardy.

  5. You cannot understand something you've never dealt with. And most of these folks who seek to rule this country haven't held real jobs, never dealt with real budgets, etc. Of COURSE they propose stupid ideas. They've got no life experience upon which to base any of their decisions.

    Not to mention the fact that all of their legislation is deliberately vague to facilitate future rule changes based on differing interpretations of said legislation. Gotta keep that escape hatch open for future generational theft, ya know?

  6. Linked and quoted here too, Mr Jacobson

    Great post!

    The Reaganite Republican


  7. "I don't think Obama and the other Democrats are lying about this aspect of the health care tax. They truly do not understand how the private economy works. In their blissful ignorance they are designing job-killings provisions which they do not understand."

    I give this administration more credit. If they can find their way to toothbrushes in the morning, they have sufficient eyesight and intelligence to notice the debris floating in their wake. If they can notice the debris, they surely can ask people with business experience to explain the wreckage. All of Washington and the entire power structure cannot remain ignorant 100% of the time; nor can the White House claim a lack of access to knowledgeable advisors.

    This administration has no experience running businesses (by choice), but they have read their Little Red Books and other instruction manuals for firing torpedoes into the economy.

    I believe the destruction is deliberate, which is why I am afraid, very afraid.

  8. Anybody remember this? Back in March of '09 IBM offered to "transfer",as opposed to "lay off",employees to India. The employees would work for prevailing wages in that country. Googling for this news brings up some articles but the most complete came from a blog site: Democratic Underground and posted by OhioChick dated Feb 2.
    Business Week had news on Mar 25. To add insult to injury Google search also has one result for a Payday Loan ad to assist IBM transferees with some wait time between Paychecks. The money river runs through it.

  9. Umnnnh...it's worse than you think, Professor.

    Most businesses pay around 15% of payroll for health benefits now. If the "penalty" for NOT providing insurance is 8%, then the business will elect to stop providing health insurance.

    Saves around 50% of that piece of overhead.

  10. Companies moved out of urban areas because of liberal tax and social policies. When jobs left the inner city the urban decay started. Now Dems are doing it on a national level and those jobs will leave the country.

    We already have one of the highest corporate tax rates in the world and it hurts us not just in keeping jobs but in luring jobs here. This bill will only make matters worse.

    The Dems are killing the goose that lays the golden eggs, and as you noted, they don't even understand what they are doing. If these companies already have "thin margins", what will driving up their costs do? They should call this bill the small business suicide pact.

  11. Our highly esteemed Law Professor wisely lamented:
    "It is not an overstatement to say 'be afraid, be very afraid' of this monstrosity."

    Aye, that was the section I pulled yesterday when a large, quite diverse volunteer group of us were each given small sections of the bulbous monstrosity in an attempt to uncover its dasdardly underbelly and render "red flag" synopsis' thereof. Needless to say, we didn't have to labor long before finding those rotten "gems".

    I spent more years than I care to remember dealing with the bureaucratic reams of red tape with which the FDA swaddles itself [::whisper::] working in the "evil" biotech/pharma industry with clinical trial protocols and the like. Even as aggravating as all of that, can't say as I ever came across even the most intricate Phase IV protocol that neared anything like 1000 pages, let alone 1900. Meh.

    PK/PD studies were another matter altogether, those filled 5" ring binders shelf after shelf per trial, but I digress...

    After mucking through my small allotted number of pages, at the behest of the collator covering the range of pages I was assigned to, she asked if I could manage the time to cover another section farther on, specifically pages 360+. Its pages, in part, detailed an extensive table of contents affecting, what else?, Medicare.

    Just joining me in assessing the blasted ToC was enough to send my colleague off to contemplate plotting her early retirement if the monstrosity is actually passed by both Chambers of our lowly-esteemed Congress. Whilst I'm only a lowly doctoral wonkette, she's a clinical and research MD.

    Thankfully, my painful foray into the underbelly of the latest Pelosi Production ended shortly after I wandered across a little ditty in the ToC entitled "Subtitle D--Physician Payments Sunshine Provision". That section in the ToC followed one section after another which further stripped States rights from top to bottom.

    As one enlightened soul pointed out something yesterday to the lucid effect that if our founding document, the United States Constitution, required less than 10 pages to construct, how in heck did we get from that to nigh on two thousand page Unconstitutional Bills with the dire and distinct possibility they really will end up signed into Law? Maybe I'll run off into the night with my friend and colleague ... to contemplate something else entirely...

  12. Its about money and power. I agree with Mr. Torpedo above. Its a deliberate attempt to ruin another large chunk of our economy. Then when the whole rotten bottom falls out, declare emergency and take the power. Welcome to Unified Socialist States of America, or unCivil War v2.0...Be a boy scout, be prepared!

  13. When do you think the trial lawyers will realize that once the government takes over everything, they will have no one to sue?