As more U.S. corporate heavyweights warn about multimillion-dollar charges related to the Obama administration's landmark healthcare bill, experts say the one-time hit simply curbs a government giveaway.
At issue is a sweetener added in 2003 by lawmakers to legislation providing a prescription drug benefit to Medicare, the health insurance plan for the elderly.
That incentive was a 28 percent subsidy for retiree coverage, plus a tax deduction for the payment, essentially creating a double benefit not usually granted under tax rules.
The carrot was added to ensure employers would not drop their own retiree coverage. The legislation signed by President Barack Obama last week keeps the subsidy, but no longer lets companies deduct the subsidy from their income.
That change has prompted a slew of companies to warn investors of one-time charges, generally in the millions of dollars to $150 million, although AT&T reported an eye-popping $1 billion charge.
Corporate America complains the change amounts to a tax increase, while the White House says it essentially closes a loophole.
"There is no question that the prior rule was a double dip," said Edward Kleinbard, a law professor at the University of Southern California and former chief of staff of the congressional Joint Committee on Taxation.
"On the one hand, employers got a tax-free cash subsidy for offering these qualified retiree prescription drug plans, and on the other, the employers got to deduct that subsidy when they incurred costs under the plan," he added.
Just days after the bill was passed, AT&T, Caterpillar, Deere, Boeing, and others started announcing the charges to their earnings.
Republicans are citing the charges in their assault on the law. Their House leadership shot an email to reporters within an hour of Boeing's announcement Wednesday that it would take a $150 million non-cash charge against first-quarter results due to the change.
"Boeing has joined a long list of employers," the email said, asserting that the healthcare law "continues to have a negative effect" on the economy.
White House spokesman Robert Gibbs last week brushed aside the companies' and Republicans' complaints, saying the changes amounted to closing a tax loophole.
"So basically, they get a subsidy and what amounts to two deductions," Gibbs said. "This bill, our bill, simply closes the loophole."
The debate over the change could come to a head on April 21, when the House Energy and Commerce Committee has called the chief executives of AT&T, Deere, Caterpillar and Verizon Communications to a hearing on the matter.
Committee Chairman Henry Waxman, a California Democrat known for calling CEOs to task, invited the executives saying: "The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern."
The change impacts a small group of companies that are still providing retiree health benefits, mainly manufacturing companies with large contingents of unionized workers. Most companies have abandoned the retiree health business due to escalating healthcare costs.
Companies are obligated by disclosure regulations to declare the charges now, though the cash will not leave their pockets immediately.
Under accounting rules, even though the tax change will not occur until 2013, they need to adjust their books accordingly, estimating far into the future.
"The huge numbers you see are essentially actuarial value of this deduction going out into the future; it's not that a company will write a check for $1 billion," said a veteran tax expert in Washington who works for large companies, but was not authorized to speak on the record.
The passage of the healthcare bill took a year and the fate of the deduction was fluid throughout, which explains why the companies only came out with estimates once it passed.
"People had declared this everything from dead to a sure thing," said Kim Monk, an analyst for investors at Capital Alpha Partners in Washington.
The majority of the charges do seem small in the grand scheme of things. For example, Boeing's $150 million charge compares to an estimated $65 billion in revenue it expects to earn in 2010 alone.
"Both sides of the debate have a point," said Mark Ritter, executive director for the compensation and benefits practice at the accounting firm Grant Thornton. "It is correct that they are taking away something that corporations had before. But now the priorities of Congress have changed."
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