Loopholes Are Forever
On Saturday the Wall Street Journal editorial page loudly moaned about a provision of the healthcare bill that, they said, was prompting a "wave" of announcements of corporate losses. "This wholesale destruction of wealth and capital came with more than ample warning," they wrote ominously. "Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare." I linked to this briefly the other day, but it's worth a little bit of explication.
It's true: there has been a wave of press releases announcing multi-million dollar writedowns from some of America's biggest corporations. In fact, as Igor Volsky points out, these press releases seem downright coordinated. So what's going on? It all goes back to George Bush's expansion of Medicare prescription drug benefits:
The Medicare Part D legislation gives subsidizes of about $1,300 per retiree per year to businesses that provide prescription drugs to their retirees and permits companies to deduct the value of credit....The new health care law, however, pays for itself by eliminating waste in the system and it closes this particular double dipping provision. Companies would still receive the tax-free subsidy, but they’ll no longer be able to deduct it. And they’re angry.
Well, who wouldn't be angry? Getting a government subsidy and being able to deduct it from your tax bill is a helluva juicy deal. I sure wish I could do something like that. But I'm not a giant corporation, so I can't.
Anyway, it turns out that corporations who qualify for this sweetheart deal accounted for it as a future addition to their earnings stream. Now the stream is gone — after 2013, anyway — so they have to reverse that accounting charge. It's very sad. Still, there's no actual money involved. No one has to write a check to anyone else. Corporations just have to add a footnote to their next quarterly report saying that the government has come to its senses and will no longer allow them to write off an expense that the government is paying for in the first place.
As a friend once said, you could spend your whole life correcting the Journal's editorial mendacity once you let yourself get sucked down that particular rabbit hole. But this one is likely to become a common talking point, and it's arcane enough that hardly anyone understands what's so bogus about it. Now you do, and you can pass it along to your friends the next time you hear it.