Double Dips

 Posted by at 16:30  Business, Politics
Apr 062010
 

I don’t know about you, but I am more than just a little tired of big business in this country basing their profits on freebies from the government and then complaining and cutting their employees’ benefits when those freebies go away.

We Call That Double-Dipping

Republican critics are continuing to pummel health care reform. Their newest charge is that the elimination of one generous tax deduction for retiree benefits would take such a bite out of corporate profits that companies may have to cut back on hiring, drop that retiree benefit, and shift added costs onto the taxpayer.

What is really going on? It is true that, starting in 2013, the new law eliminates a corporate tax advantage on retiree drug benefits that amounts to double-dipping.

It is also true that accounting rules require that the present value of the entire additional tax that companies will have to pay over the next several decades be put on the books now. That led AT&T to declare a charge of about $1 billion in the first quarter of 2010 and Verizon to declare $970 million.

Those look like staggering amounts until one understands that they don’t require any immediate cash payments and that the added taxes will be paid out slowly — over perhaps 30, 40 or more years, depending on a company’s retiree plan…

The affected companies have already profited from an inequitable provision in the 2003 Medicare prescription drug law. At the time, many employers were already providing drug coverage for their retirees. And to keep them from dropping that coverage, the new law provided doubly sweet subsidies to corporations.

For every $100 the company spends on retiree drug benefits, Medicare sends it a subsidy payment of $28. On top of that, the companies got a rare double tax break. The $28 subsidy is tax-free, and the company was allowed to deduct the entire $100 as a business expense.

The new health care reform law has left the 28 percent subsidy intact and continued to exempt it from taxation. But companies will no longer be allowed to deduct the subsidy as if it were an expenditure of their own…

The unanswered question is whether — as the critics charge — the change will push a lot of employers into dropping their retiree drug plans. The remaining tax subsidy is substantial and many companies and their workers value the retiree drug benefit, so defections may be small. If some retirees do lose their company drug benefits, they can buy government-subsidized coverage in Medicare that may be just or almost as good and will be getting better as health care reform progresses. Willing employers could also help subsidize their retirees’ drug coverage in Medicare.

That’s the least they should do in return for the generous tax benefits they have been receiving.

Perhaps it is time for new management at some of these large American corporations — management that can make a profit without government giveaways and giant tax loopholes and still provide for the people upon whom their businesses rely.

(Note to AT&T: You are paying Randall Stephenson at least $20,000,000 per year. Perhaps it’s time to expect a little competence and leadership in exchange for all that money.)