Monday, April 05, 2010

How DARE You Stop Giving Government Money to Healthcare!

Here's a fun talking point.

On top of AT&T's $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.
Obamacare is already destroying big business! This is AWFUL!

I think the best source for an explanation for this comes from the same publication.

...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.

...This newspaper reported last Friday that while one company calculated a $100 million hit to its first-quarter earnings, its actual cost after taxes and subsidies, beginning in 2013, was closer to $7 million a year, or less than 1% of its profits last year.

Credit Suisse's response to the tax controversy was: "don't overreact to the hit on earnings." Morgan Stanley referred to it as "noise" that would have "no impact whatsoever" on their view of this earnings cycle. And UBS projected that the impact in virtually all cases represented less than 1% of market capitalization for affected companies.
So in other words, what's got conservatives worked up is that the government is no longer giving companies a tax break on the money the government is giving them. At first I thought they were upset that that government is stopping the subsidies entirely, but the government isn't even doing that! And why isn't that 28% a "government takeover of healthcare" - right, because it was Bush's government.

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