Legislation provides subsidy for retiree RX benefits but eliminates provision that allows company to “deduct that subsidy from their taxes”

2003 Medicare prescription drug bill gave corporations a tax-free subsidy for retiree prescription drug benefits and also allowed companies to deduct that subsidy from their income taxes. In a March 29 article, The New York Times reported that "[w]hen Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree -- and also allowing them to deduct those subsidies from their income taxes."

Klein: Medicare Part D change “isn't a new mandate or a hefty tax,” but rather eliminates companies' ability to deduct a “tax free” federal subsidy from their taxes. On March 29, Washington Post blogger Ezra Klein wrote:

What happened was this: When George W. Bush and the Republican Congress passed Medicare Part D in 2003, they were presented with a problem: The fact that the government was now offering prescription drug coverage might encourage these companies to dump the prescription drug coverage they were already offering employees. So Congress gave them a kickback: Companies that provide retiree drug benefits get a subsidy of about $1,300 per retiree per year in order to keep companies from ending their retiree drug plans at once and dumping everyone into Medicare. This subsidy is not just tax free but also tax deductible. Let me make sure that's clear: Not only did companies get a subsidy, but they could also deduct that subsidy from their taxes. Sweet deal.

This looked a bit nuts in retrospect, so Democrats ended the subsidy's deductibility. Again, let's be clear: They didn't end the subsidy. And they didn't make it taxable. They just said that it couldn't be used as a tax deduction.

NYT: “The federal government will continue providing” Medicare prescription drug subsidies to large corporations, which amount to “28 percent of a drug plan's costs.” In the same March 29 article, The New York Times wrote:

When Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree -- and also allowing them to deduct those subsidies from their income taxes.

Under the health care overhaul, the federal government will continue providing those subsidies -- amounting to 28 percent of a drug plan's costs -- but companies will lose the tax break.

Large corporations announce billions in write-downs, but commerce committee says numbers “conflict with independent analyses”

Large corporations such as AT&T, Caterpillar, and others announced billions in write-downs in response to health care reform legislation. In its March 29 article, the Times reported that the American Benefits Council, which is “an association representing 300 large corporations” urged the “repeal” of the provision of the health care reform legislation which allowed for corporations to also deduct from their taxes the subsidies the federal government gave them to cover prescription drug benefits for their retirees. The Times noted that, for instance, AT&T had “announced ... that it was taking a $1 billion charge because of the provision. Deere & Company announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge.” The Times further reported that "[m]any companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. But some corporate critics asserted that the companies' rapid response to the health legislation was aimed at pressing the administration to repeal the provision."

House Committee on Energy and Commerce say write-downs “are a matter of concern,” but the numbers “appear to conflict with independent analyses.” In a March 26 letter to AT&T CEO Randall Stephenson, Waxman, chairman of the Energy and Commerce Committee, and Rep. Bart Stupak (D-MI), chairman of the Subcommittee on Oversight and Investigations, describe AT&T's write-downs as “a matter of concern” because "[t]he new law is designed to expand coverage and bring down costs." The letter adds that AT&T's numbers “appear to conflict with independent analyses,” such as those estimated by the Congressional Budget Office and the Business Roundtable. From the March 26 letter:

On March 23, 2010, President Obama signed health care reform into law. One of the top priorities of the House Energy and Commerce Committee will be to ensure that the law is implemented effectively and does not have unintended consequences.

After the President signed the health care reform bill into law, your company announced that provisions in the law could adversely affect your ability to provide health insurance. AT&T stated in its March 26,2010, filing with the Securities and Exchange Commission that it intends to take a charge of approximately $1 billion in the first quarter of 2010. As a result of the legislation, the company says it “will be evaluating prospective changes to the active and retiree health care benefits offered by the company.”

The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern. They also appear to conflict with independent analyses. The Congressional Budget Office has reported that companies that insure more than 50 employees would see a decrease of up to 3% in average premium costs per person by 2016.2 The Business Roundtable, an association of chief executive officers from leading U.S. companies, asserted in November 2009 that health care reform could reduce predicted health insurance cost trends for businesses by more than $3,000 per employee over the next ten years.

The Subcommittee on Oversight and Investigations will hold a hearing on April 21, 2010, at 10:00 a.m. in Room 2123 of the Rayburn House Office Building to examine the impact of the new law on AT&T and other large employers. We request your personal testimony at this hearing.

Right-wing media mislead on retiree tax provisions and declare hearing an attempt “to intimidate” corporations

Wall Street Journal: Health care bill “raise[s] taxes on companies” that provide retiree benefits and hearings amount to “shoot[ing] the messenger.” In a March 27 editorial, The Wall Street Journal called the health care bill a “wholesale destruction of wealth and capital” and misleadingly claimed that it “raise[s] taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare.” The Journal did not explain that the legislation would include a tax-free subsidy to help companies to pay for retiree prescription benefits but no longer allow companies to additionally deduct this subsidy from their income tax. The Journal also quoted from Waxman's letter and wrote, “In other words, shoot the messenger.”

NRO: “Thugocracy Whipsaws Capitalism.” In a March 27 National Review Online post, Andy McCarthy called the Obama administration a “thugocracy” and Waxman the “People's Commissar,” claiming he “is now planning to haul the companies before his committee because their disclosures fail to play along with the our Leftist rulers' script that Obamacare 'will expand coverage and bring down costs.' ” McCarthy also highlighted the March 27 Wall Street Journal editorial, also without noting that the legislation keeps in play a tax-free subsidy for retiree prescription benefits while eliminating companies' ability to additionally deduct that subsidy from their income taxes.

Gateway Pundit: “Dems Threaten Congressional Show Trials After US Companies Leak Real Economic Damage of Obamacare.” In a March 28 post, Gateway Pundit blogger Jim Hoft claimed: “Late last week several US corporations leaked how the democrat's health care bill will kill their businesses. The radicals in Congress were not pleased that these corporations would go public with this devastating information. In response, democrats threatened to call for Congressional show trials to publicly humiliate these corporations." Hoft cited the March 27 Wall Street Journal editorial which claimed that Democrats “decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare.” Like The Wall Street Journal and McCarthy, Hoft made no mention of the fact that the legislation would keep a tax-free subsidy for retiree prescription drug benefits, while no longer allowing companies to deduct from their income tax these same subsidies. Hoft went on to call the hearings “democrat's trickery.”

Fox Nation: “Dems Threaten Companies for Revealing Obamacare Costs.” Fox Nation linked to the Gateway Pundit post with the headline, “Dems Threaten Companies for Revealing Obamacare Costs.” From the Fox Nation:

Washington Examiner: "Democrats threaten companies hit hard by health care bill." In a March 28 Washington Examiner article, Byron York called the corporations' announcements “an embarrassment for Democrats” and reported that “Republicans are likely to emphasize the costs, both financial and human, of the new law.” York claimed that, given this, “it's no wonder Democrats are planning an aggressive campaign against the businesses involved. Elections are coming up, and Democratic leaders are in no mood to hear discouraging words about what they regard as their signature achievement.”

Fox & Friends' Carlson asks, “Are the Democrats trying to intimidate” corporations “into not really telling the truth about the economic effects of health care” reform? On the March 30 edition of Fox News' Fox & Friends, co-host Gretchen Carlson asked if by having a hearing, were “Democrats trying to intimidate these companies into cooperating?” York -- who appeared as a guest on the program -- claimed, “The Democrats just do not really want to hear a discouraging word” about the bill. Carlson later asked, “Are they going to pressure these big companies into not really telling the truth about the economic effects of health care on their organizations?” while guest-host Peter Johnson Jr. asked if it was “rank intimidation.”

Ingraham: Shame on “Congress for actually doing this to American business.” Later on the March 30 edition of Fox News' Fox & Friends, co-host Steve Doocy said, “You've got the news that AT&T will be hit with a $1 billion worth of additional cost, and then you've got Caterpillar, a $100 million worth of new cost. And then you've got some Democrats threatening to haul some of these CEOs of these companies into a hearing room on Capitol Hill because they provided this damning information to the public that the health care bill does have a big cost.” Fox News contributor Laura Ingraham replied, “How dare American corporations actually stand up for the free market and stand up for profitability?” Ingraham later claimed: “Henry Waxman is always wagging his finger at companies that actually do something called employ people. All right? So, he's always hauling people up to try to shame them, and I think the finger should be wagging in the other direction right now, and shaming Congress for actually doing this to American business.” During the segment, the following on-screen graphic aired:

Atlas Shrugs: “Despot Dems Intimidate/Threaten Businesses Because of Their Staggering Obamacare Losses.” In a March 29 Atlas Shrugs post, blogger Pamela Geller wrote that “the bloodsucking Dem despotic government is threatening retribution to businesses for filing reports required by law." Geller called Waxman's summons a “gestapo 'invite' ” and re-posted York's March 28 Washington Examiner article on the subject.

Washington Times: “Dems look to muzzle businesses taking hits from health care law.” In a March 29 post on The Washington Times' blog The Water Cooler, titled, “Dems look to muzzle businesses taking hits from health care law,” Kerry Picket wrote: “Other companies are expected to announce financial hits they are taking in the coming days and weeks ahead, but when powerful government interests from the White House to Congress attack the private sector for simply being the messenger, it appears the motives can only be to make any other company that could be suffering under the new health care law to shut -up.”

Erickson: “The New McCarthyism is Waxmania: Silencing the Capitalists.” In a March 29 Red State post, right-wing blogger and CNN contributor Erick Erickson called Waxman's summons “the new McCarthyism” and claimed, “If McCarthyism was about hounding out communists and their sympathizers, the left seems intent on creating their own version of McCarthyism, which we can call Waxmania -- silencing capitalists.” Erickson added: "[W]e have seen this abuse over and over from the Democrats in the past year. Waxman is a chief abuser, wanting to haul in insurance companies and other companies that have opposed the left's agenda."