Commentary Magazine


Topic: AK Steel

Democrats Try to Smother the Bad News

As I’ve noted during the week, the ObamaCare steamroller is already flattening the bottom lines of a number of large employers. Not content to see billions of losses pile up, the Democrats have now begun to berate employers for accurately accounting for the anticipated losses. The Wall Street Journal editors note:

Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment “appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.”

In other words, shoot the messenger. Black-letter financial accounting rules require that corporations immediately restate their earnings to reflect the present value of their long-term health liabilities, including a higher tax burden. Should these companies have played chicken with the Securities and Exchange Commission to avoid this politically inconvenient reality? Democrats don’t like what their bill is doing in the real world, so they now want to intimidate CEOs into keeping quiet.

On top of AT&T’s $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.

Well, this is par for the course: a complete disregard for the consequences of their own handiwork, the bullying of private enterprise, and the determination to politicize what were once economic and legal judgments. One can see in the Democrats’ fury the desperate attempt to conceal the implications of their monstrous legislation, to maintain as long as possible the fiction that ObamaCare is a great cost-saver, and boon to employers. It’s going to be hard to keep up the charade, for as the editors note, ObamaCare “was such a shoddy, jerry-rigged piece of work that the damage is coming sooner than even some critics expected.”

In that regard the adverse consequences of ObamaCare will likely be more apparent than those of the ill-conceived stimulus plan, which “merely” added to the ocean of red ink. How will shareholders, small-business owners, employees, and retirees react as they see the damage pile up, and learn that there is more in store if the bill is fully implemented? Well, they might find “Repeal and Replace!” an attractive message.

As I’ve noted during the week, the ObamaCare steamroller is already flattening the bottom lines of a number of large employers. Not content to see billions of losses pile up, the Democrats have now begun to berate employers for accurately accounting for the anticipated losses. The Wall Street Journal editors note:

Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment “appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.”

In other words, shoot the messenger. Black-letter financial accounting rules require that corporations immediately restate their earnings to reflect the present value of their long-term health liabilities, including a higher tax burden. Should these companies have played chicken with the Securities and Exchange Commission to avoid this politically inconvenient reality? Democrats don’t like what their bill is doing in the real world, so they now want to intimidate CEOs into keeping quiet.

On top of AT&T’s $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.

Well, this is par for the course: a complete disregard for the consequences of their own handiwork, the bullying of private enterprise, and the determination to politicize what were once economic and legal judgments. One can see in the Democrats’ fury the desperate attempt to conceal the implications of their monstrous legislation, to maintain as long as possible the fiction that ObamaCare is a great cost-saver, and boon to employers. It’s going to be hard to keep up the charade, for as the editors note, ObamaCare “was such a shoddy, jerry-rigged piece of work that the damage is coming sooner than even some critics expected.”

In that regard the adverse consequences of ObamaCare will likely be more apparent than those of the ill-conceived stimulus plan, which “merely” added to the ocean of red ink. How will shareholders, small-business owners, employees, and retirees react as they see the damage pile up, and learn that there is more in store if the bill is fully implemented? Well, they might find “Repeal and Replace!” an attractive message.

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RE: RE: ObamaCare Hits Home

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.

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.

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