Obamacare’s Prescription for Disaster: $14 Billion Cost to Industry

April 1, 2010 03:05

The tax changes will burden the American economy’s ability to create jobs. -Douglas Holtz-Eakin, a former director of the Congressional Budget Office.

By: David A. Patten at Newsmax.com

Major business groups want a provision of healthcare-reform repealed because it could cost American corporations up to $14 billion at a time when people desperately need jobs.

James A. Klein, president of the American Benefits Council, warns the same tax-law change that led AT&T to take a $1 billion charge last week represents “a serious mistake that is having negative and unintended consequences.”

On Wednesday, Boeing became the latest company to announce a write down of value due to healthcare reform, deducting $150 million from its first quarter earnings.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, and the head of President George W. Bush’s council of economic advisers, tells Newsmax that the higher taxes incurred by AT&T and other corporations reflect the deep flaws in the healthcare reform measure, which he calls “a dreadful bill, one this country really can’t afford and shouldn’t have pursued.”

He adds that the tax changes will burden the American economy’s ability to create jobs.

“That money’s going to come out of the ability to invest in capital, the ability to hire new workers, the ability to do R & D — all the things that are at the heart of making the economy grow faster,” he says.

At the heart of the controversy are changes in subsidies first offered to businesses when the system to provide prescription drug benefits to seniors, known as Medicare Part D, was enacted in 2003.

Many major companies that already paid to provide prescription-drug benefits to their retirees would simply shift them onto Medicare Part D, disrupting seniors’ healthcare plans while increasing the costs of Medicare Part D.

To encourage businesses to keep the retirees on the corporate plans, two incentives were offered: The corporations would receive a federal subsidy of $1,330 per retiree, and they would be able to deduct the value of the subsidy from their corporate tax bills.

Congressional Democrats and White House Press Secretary Robert Gibbs have referred to the double incentive as a “tax loophole.” Not so, according to Holtz-Eakin, who says Congress “carefully calibrated” the precise, smallest subsidy necessary to keep companies from cancelling prescription-drug coverage from retirees’ plans.

The healthcare plan signed by President Obama changes that structure, however, continuing the subsidy while ending the tax deductibility of the program costs. The change affects the profitability of a wide range of companies struggling to remain competitive in a tough economy.

In addition to AT&T’s whopping $1 billion write-off in value and Boeing’s $150 million, the other companies taking charges read like a Who’s Who of American industry:

  • Deere & Company – $150 million
  • Caterpillar – $100 million
  • 3 M – $90 million
  • Goodrich – $10 million
  • Valero – $15-$20 million
  • AK Steel – $31 million

In addition, telecommunications giant Verizon has sent a letter to employees warning that their healthcare plans may change as a result of healthcare reform.

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In 1919,  Lenin wrote after his takeover of Russia that the way to control a country is to first take over the industry,  the land,  and the banks.

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