The ink on the health care law President Obama signed last week hadn’t even dried when Republicans and business reporters picked up on a striking claim from some of the nation’s biggest corporations. The legislation, they say, will cost them hundreds of millions of dollars this year, thanks to the elimination of a major tax deduction — but that’s a claim the Democrats aren’t taking at face value.
Republicans instantly glommed on, using figures released by the companies as part of their ongoing efforts to portray the bill as a jobs killer. “[W]e heard from Caterpillar this week; $100 million it’s going to cost them just this year,” warned Rep. Louie Gohmert (R-TX) on the House floor Sunday–one of several House Republicans to attack the bill for hurting employers.
There are a couple of problems, though.The provision upon which they’re basing this claim closes a loophole written into Medicare Part D legislation when Republicans controlled Washington. And though the change will cost the companies a small amount of money each year, it doesn’t take effect until 2013–the figures the companies released last week reflect the sum total of the costs over several years. And as a result, House Energy and Commerce Chairman Henry Waxman has welcomed executives from these companies to defend their claims on Capitol Hill.
Several firms have indeed claimed the reforms will cost them big bucks before the year is out. AT&T said “Included among the major provisions of the law is a change in the tax treatment of the Medicare Part D subsidy,” in an SEC filing, adding that the company “intends to take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change.”
Verizon notified its employees by email that they may see changes to their benefits. The new law, they wrote, “may have significant implications for both retirees and employers,” because of changes it makes to federal tax treatment of Medicare Part D subsidies.
The list goes on. But the reality is less striking than the enormous figures indicate.
When Part D was enacted in 2003, it contained a number of heavily criticized boondoggles for big businesses, but one such loophole offered companies subsidies to continue providing prescription drug benefits to retirees…and made those subsidies tax deductible.
Fast forward to 2010, the newly signed health care bill doesn’t end the subsidies, or change the fact that those subsidies are tax free–it simply ends companies’ ability to deduct them. The money that companies spend out of their own pockets on prescription drugs under Part D is still tax deductible.
In preparing for the hit, though, companies have summed up the permanent cost of this tax change and plan to write it down all at once. Now, conservatives are citing that overall cost to suggest that these companies will have to bear a billion dollar burden every year. And, of course, the kicker is that this change will not take effect under the terms of the law for three years.
Waxman has invited the CEOs of four companies–AT&T, Verizon, John Deere, and Caterpillar–to defend their claims before his committee when Congress returns from recess next week. We’ll look closely at what they have to say.