This report begins to tally up the immediate hit on American employers from ObamaCare:
In the wake of Washington’s health-care overhaul, some companies are taking big one-time charges for anticipated costs, fanning tension with the administration over the legislation’s impact on corporate America.
Three companies that were among vocal opponents of the legislation have warned they would see an immediate impact on their earnings as a result of the loss of deductions on tax-free subsidies they receive for providing retiree prescription-drug benefits.
On Thursday, Deere & Co. said it would take a $150 million one-time charge in the current quarter related to the loss of deductions. Earlier in the week, Caterillar Inc. reported a $100 million charge and AK Steel recorded a $31 million charge.
Beginning in 2006, companies have received a 28% federal subsidy, up to $1,330 per retiree, tax-free, to help pay for prescription-drug coverage. Until now, companies could deduct the subsidy from their taxes, essentially getting a second benefit from the money. Under the new law, companies will no longer be able to deduct the subsidy, but it remains tax-free.
Although the changes don’t go into effect until 2013, companies say they have to take the charge to earnings now, to reflect the loss of the future tax deductions. In all, the S&P 500 companies will take a combined hit of $4.5 billion to first-quarter earnings, estimates David Zion, an analyst with Credit Suisse. [emphasis added]
That is right — $5.4 billion from a single tax change, money that can’t be invested in new plants or used to hire new workers. The administration’s reaction? Commerce Secretary Gary Locke says, “It is simply not responsible to suggest that the new health-care law is bad for business.” These companies have a legal obligation to accurately assess earnings, so what would Locke have them do — conceal the hit and risk lawsuits from shareholders and prosecution by his colleagues at the SEC? It’s absurd to suggest that businesses that will suffer from the mandates, fines, and taxes imposed should essentially shut up about the adverse consequences of the legislation.
Robert Gibbs adds to the air of dismissiveness, saying, “Companies not only get the subsidy tax-free, but they then deduct the amount. Our bill simply closes the loophole.” Yes, by White House standards, raising taxes by $5.4B is no more than a loophole. If you have the sense that no one in the White House has much sympathy for or understands private industry, you are right. If they did, we would not now be facing a gargantuan tax hike — and more to follow with the expiration of the Bush tax cuts.