Research Briefing

Tax Hike On Job Creators’ Health Care Costs During Economic Downturn Only Makes Sense To Obama

OBAMA’S HEALTH CARE TAKEOVER TAKES AWAY TAX CUTS

FOR JOB CREATORS PROVIDING DRUG COVERAGE FOR RETIREES 

Obama’s Bill Takes Away “Tax Deductions For Companies With Drug Coverage For Their Retired Employees” That Will “Discourage Companies From Hiring More Workers.” “An association representing 300 large corporations urged President Obama and Congress on Monday to repeal a provision of the health care overhaul that prompted AT&T, Caterpillar and other companies to announce substantial charges for the current quarter. The association, the American Benefits Council, said the provision — which reduces the tax deductions for companies with drug coverage for their retired employees — would deal a significant blow to corporate profits and would discourage companies from hiring more workers. … James A. Klein, the president of the American Benefits Council, called the provision ‘a serious mistake that is having negative and unintended consequences.’” (Steven Greenhouse, “Companies Push To Repeal Provision Of Health Law,” The New York Times, 3/29/10)

TAX INCREASE WOULD AMOUNT TO $14 BILLION HIT TO THE ECONOMY, KILLING JOBS …

James Klein, President Of Association Representing 300 Large Job Creators, Says It Could Cost Companies $14 Billion And “In This Economic Environment, It Makes No Sense.” “In a telephone news conference on Monday, Mr. Klein cited a study by Towers Watson, a consulting firm, saying the loss of the deduction would cost companies $14 billion in future years. ‘Particularly in this economic environment, it makes no sense to impose this type of a hit on companies’ financial statements,’ Mr. Klein said.” (Steven Greenhouse, “Companies Push To Repeal Provision Of Health Law,” The New York Times, 3/29/10)

• Klein: “If Companies Are Going To Take A Hit Like This On Their Financial Statements That Will Certainly Hurt Their Ability To Borrow In The Marketplace And Make The Type Of Investments That Will Retain And Create Jobs.” (Steven Greenhouse, “Companies Push To Repeal Provision Of Health Law,” The New York Times, 3/29/10)

Prudential Latest Company To Be Hit, Declaring A $100 Million Charge Because Of Obama’s Government-Run Health Care Plan Which Taxes Retirees’ Drug Coverage. “Insurer Prudential Financial Inc. said Monday that it will take a $100 million charge in the first quarter in relation to the recent health care overhaul legislation. The life insurance and annuities provider said in a regulatory filing that it will take the charge against earnings in the first quarter… Prudential said in a filing with the Securities and Exchange Commission that the health bill signed into law by President Barack Obama last week and a companion measure he is expected to sign Tuesday will reduce its tax deduction for retiree health care costs beginning in 2013.” (“Prudential To Take $100 M Health Care Charge In 1Q,” The Associated Press, 3/29/10)

• Joining AT&T, Who Reported $1 Billion In Unexpected Costs After Health Care Takeover. “AT&T will take a $1 billion non-cash charge in the first quarter related to the health care overhaul. AT&T Inc. said Friday that the charge is to reflect the change of the tax treatment of Medicare subsidies. Companies say the health care overhaul, which President Barack Obama signed Tuesday, will make a subsidy that companies receive for retiree drug coverage taxable in 2011. AT&T also says it is looking into changing the health care benefits it offers to active and retired workers because of the legislation.” (“AT&T Will Take $1B Non-Cash Charge For Health Care, “ The Associated Press, 3/26/10)
• Caterpillar, Who Said Their Costs Will Increase By $100 Million In First Year, “Place [Them] At A Disadvantage Versus [Their] Global Competitors.” “Caterpillar Inc. said the health-care overhaul legislation being considered by the U.S. House would increase the company’s health-care costs by more than $100 million in the first year alone. ... ‘We can ill-afford cost increases that place us at a disadvantage versus our global competitors,’ said the letter signed by Gregory Folley, vice president and chief human resources officer of Caterpillar. ‘We are disappointed that efforts at reform have not addressed the cost concerns we’ve raised throughout the year.’“ (“Caterpillar: Health Care Bill Would Cost It $100M,” Dow Jones Newswires, 3/19/10)
• And John Deere, Who Will Lost $150 Million This Year Because Of Government-Run Health Care. “Deere & Company, Iowa’s largest manufacturing employer, said in a statement this morning that the recently-passed health care legislation will cost the company $150 million after tax this year... Golden said Deere and other companies warned congress in a letter last December that the imposition of a tax on the prescription costs would force publicly-traded corporations like Deere to publicly account for the extra costs. Deere said the impact of the legislation had not been included in its forecast for a profit of $1.3 billion for this year...” (Dan Piller, “Deere Says Health Care Bill Will Cost It $150 Million,” The Des Moines Register’s “Green Fields” Blog, 3/25/10)

AND WOULD HURT RETIREES WHO RELY ON DRUG COVERAGE THEY HAVE NOW

Tax Increase Will Cause Up To 2 Million Retirees To Lose Drug Coverage They Currently Have. “About 6.3 million retirees — an estimated two-thirds of them from the private sector — are covered by employer drug plans. Mr. Klein cited a study by the Moran Company, a health care consulting group, estimating that as a result of the legislation, drug coverage would be altered for 1.5 million to 2 million retirees. Many companies, he said, will stop providing drug coverage to retirees and will instead push them into Medicare Part D, causing the government to pay for their coverage.” (Steven Greenhouse, “Companies Push To Repeal Provision Of Health Law,” The New York Times, 3/29/10)