Ben Stein falsely claims health care reform ends "subsidy for drug costs"
Ben Stein falsely claimed that companies are "not going to get a certain subsidy for drug costs" under health care reform. In fact, companies will still receive the tax-free government subsidy, but the legislation ends the "highly unusual" ability of companies to also take a tax deduction on that subsidy.
Stein claims health care reform will eliminate "subsidy for drug costs"
Stein: "The health care [reform] requires them to have higher health care costs because they're not going to get a certain subsidy for drug costs." During a Fox News discussion of one-time charges some corporations have announced, Stein asserted:
STEIN: The law is very clear. If a corporation incurs a cost or if something comes along that causes the corporation to have a higher cost, then the corporation must report it as a charge against income or a charge against capital. Clearly, what's happened in the health care requires them to have higher health care costs because they're not going to get a certain subsidy for drug costs. We don't need to go into the details of that. The law is clear. You must take a charge. The government is trying to McCarthyite them, to bully them, to thuggerize them into not taking this charge and to bear false witness. [Fox News' Cavuto on Business, 4/3/10]
Legislation does not eliminate subsidy -- it ends tax deduction on tax-free corporate subsidy
Legislation retains "subsidy for drug costs." The health care reform legislation does not eliminate the tax-free special subsidy payments for companies that sponsor retiree prescription drug plans. The bill eliminates the ability of companies to take a tax deduction on that tax-free subsidy.
WSJ: "Companies will no longer be able to deduct the subsidy, but it remains tax-free." In a March 26 article on the charges companies have taken, The Wall Street Journal reported that companies would retain a federal subsidy to purchase prescription drug coverage for retirees but that they would no longer be allowed the claim the subsidy as a tax deduction.
Locke: Tax deduction on tax-free subsidy was "highly unusual treatment." In an April 1 Wall Street Journal op-ed, Commerce Secretary Gary Locke discussed the provision in the health care legislation and called the actions corporations are taking in response an "accounting adjustment." As The New York Times recently reported, corporations cited the provision as a reason for announcing the write-downs. Locke wrote: "[C]ritics have seized on a minor provision in the law to suggest it's already increasing health-care costs for businesses. A fair reading of this provision suggests that its actual impact is quite modest." Locke continued:
Let's explain how this started. When the Medicare Part D prescription drug bill passed in 2003, businesses were given a double subsidy to help cover the cost of providing prescription drug coverage to their retirees. The government picked up 28% of the cost of their retiree prescription drug plans, and businesses were allowed to both exclude that 28% subsidy from their income and at the same time deduct that subsidy from their income for tax purposes.
In 2013, that changes. Under the new law, businesses will still get the same 28% subsidy, and it will still be tax free. They just don't get to deduct the subsidy.
Seems reasonable, right? This is how virtually every other federal subsidy for businesses and individuals is treated by the IRS. Indeed, Donald Marron, acting CBO director for President George W. Bush, put it this way: "[A]s the Joint Committee on Taxation recently noted, that treatment is highly unusual. In my view, it's right that the recent health legislation closed that loophole."
This change has garnered recent headlines because, to comply with accounting laws, companies affected by the provision have taken a one-time charge reflecting the loss of future tax deductions over the decades-long duration of their retiree health-care plans. Critics have seized on this accounting adjustment to suggest these costs -- as much as $1 billion in one company's case -- are going to place immediate and substantial cost burdens on America's businesses.
This is disingenuous.
The actual cash flow impact of these provisions begins in 2013, and is only a tiny fraction of the accounting charge-offs.
On Cavuto on Business, Fortune's Gallagher said bill ends companies' "double dipping." During the same panel discussion in which Stein falsely claimed that the health care bill ends the subsidy, Fortune magazine senior editor Leigh Gallagher noted that under previous law, companies were "sort of double dipping" and that their actual costs for the change are "not that much":
GALLAGHER: What they're proposing is actually - it's not that much. This is a moderate loophole, and actually, what the companies were able to do is sort of double dipping. They were able to deduct both the cost and the subsidy that the government had given them in order to promote the coverage. So it's not that much. They're using scare tactics just as much as Congress.
NEIL CAVUTO (host): But, Leigh, it's a billion bucks for AT&T. It's almost a billion bucks for Verizon.
GALLAGHER: It is. But --
CAVUTO: And you're quite right. You're quite right to address it the way you did, but they did telegraph last summer that if you do take it away, we will have to, by your own Sarbanes-Oxley rules, announce that and take a charge for that. [Cavuto on Business, 4/3/10]
/snark
We've basically given AT&T $7 Billion, since 2003... and now they are complaining that they aren't getting it anymore.
How many jobs did they add because of that handout versus how much money did the execs pocket... please, I'm tired of hearing these right wing nut jobs come to the defense of these companies... it's almost like they are so fragile that every time they pay a tax they have to fire thousands of people.
Companies are reporting profits and will continue to as the economy turns.. but not many are hiring... where is the outrage of that?
I had an argument on another forum with a small business owner the other day.
He was saying that if he has to pay more taxes, he won't be able to expand his business. I explained that if there was expanded desire for the product or service that he provided, HE'D be foolish to NOT invest in additional production capability/personnel to provide that additional capability and INCREASE his income. His income is directly related to the amount of product/service he sells, so he doesn't need extra money in his pocket from his current level of production to justify an additional expansion! He has plenty of reason to borrow from himself or from others if the return on the investment is there.
He never got it. He REFUSED to get it.
These politically partisan people refuse to listen to reason.
Yeah, because if 'we' WENT into the details of that, you'd have to admit that what actually is being done is a removal of an unfair doubling of the cost reductions for these employees as a carrot that was offered them multiple years ago to make them do the right thing.
IF we talked about it, no reasonable person would have any objection to removing that extra benefit that these businesses had.
And then, to top it off, if we actually went into the details, we'd find out that the 'accounting write-downs' are overstated and not an accurate portrait of the actual costs these businesses are facing. As I said in another post a couple of days ago, it's write-offs like this which cause corporations to avoid paying any corporate taxes some years.
On the other hand, reasonable or not, the end result is an increased cost to corporations as part of the health care bill, right?
If the impact is "quite modest" and the corporate write downs are overstated, I'd like to see what exactly the impact is. Obviously, elimination of a tax deduction has an impact.
Whereas the insurance company was all set to cut them if HCR failed? Or does a 20% to 40% increase not count somehow? You really need to get out of the garbage can a little more, oscar, considering that the rates were going up no matter what happened with HCR...
Legislation does not eliminate subsidy -- it ends tax deduction on tax-free corporate subsidy
No one is claiming that the end of this double discount isn't going to affect the corporation's bottom line. Ben Stein says that a SUBSIDY is being eliminated, and it's NOT! The subsidy remains!
Ah well, you have your agenda, I have mine. You hear "big bad evil corps" are sticking it too the worker again, I hear a "mandated cost" that will be passed on to the worker and stockholders again.
Just because the cost of something MIGHT BE SUBSIDIZED doesn't mean that there's a literal "subsidy" that's accomplishing that mitigation of the costs!
I am not "calling it what I will". You're the one doing that. You and Ben Stein, that is.
And nope, despite your baseless personal attack that I can't understand this clearly, I do. It's the political urgings in YOU and Ben Stein that fail here.
Yes, these companies will not be allowed this double dip concession any longer, and that will need to be accounted for through their business practices in some way. Too bad, so sad.