NCPA - National Center for Policy Analysis

Health Care Reform Tax Will Hurt Franchisees

September 19, 2011

You can't open a newspaper or turn on the TV these days without tax talk.  But no one seems to be talking about the $2,000 per worker tax on employers, to begin in 2014.  Enacted as part of the 2010 Patient Protection and Affordable Care Act, it will be levied on firms with 50 or more employees who do not offer the right kind of health insurance to their workers, says Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.

Franchisors, like Dairy Queen, and franchisees, the local business people who operate individual Dairy Queen stands, own groups of small businesses, such as stores, restaurants, motels and hotels.  They often employ 50 or more people at several locations that are commonly owned.

The multiunit franchisees will have a particularly difficult time operating in this uneven business environment.

  • Suppose a single multiunit franchisee owns four establishments with 15 full-time employees each.
  • Under the new health care law, this multiunit franchisee will be treated as a single firm with 60 full-time employees, and the employer will be required by law to provide health care benefits for all employees or pay the tax of $2,000 per full-time employee per year.
  • But if these four establishments were owned and operated separately, they would be exempt from the requirement of providing health care benefits.
  • Further, if these four separately-owned businesses choose to offer health insurance, they would in some cases be entitled to a small-employer tax credit.

When the employer mandates go into effect in 2014, many franchised businesses will be motivated to reduce the number of locations and move workers from full-time to part-time status.

The problem is not limited to franchise businesses.  It also will affect entrepreneurs who open additional branches of their businesses.  It is an obstacle to expansion, says Furchtgott-Roth.

Unemployment is stubbornly high and employers show little willingness to hire.  It's time for President Obama and Congress to review the new health care law to see if it may be more of a problem than a solution to securing America's future.

Source: Diana Furchtgott-Roth, "Slow Employment Growth? Look to ObamaCare," Real Clear Markets, September 15, 2011.

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