The editorial board of the WSJ continues its deconstruction of the Democrat’s understanding of Obamacare’s financial impact. I was pleased to receive this latest editorial this morning because several of you had forwarded to me several Democrat-Lefty-PolicyWonk views on the AT&T write down. To my good friends on the left, I offer this light instruction in history beginning with the 4th paragraph in the editorial:
Presumably [Obamacare defenders are] familiar with the Financial Standard Accounting Board's 1990 statement No. 106, which requires businesses to immediately restate their earnings in light of their expected future retiree health liabilities. AT&T, Deere & Co., AK Steel, Prudential and Caterpillar, among others, are simply reporting the corporate costs of the Democratic decision to raise taxes on retiree drug benefits to finance ObamaCare.
When the Medicare prescription drug plan was debated in 2003, many feared that companies already offering such coverage would cash out and dump the costs on government. So Congress created a modest subsidy, equal to 28% of the cost of these plans for seniors who would otherwise enroll in Medicare. This subsidy is tax-free, and companies used to be allowed to deduct the full cost of the benefit from their corporate income taxes (beyond the 72% employer portion).
Get it? In 2003 Republicans and the White House caved to Democrats and liberal Republicans and agreed to subsidize businesses out of a real fear that private sector retirees would be dumped onto the public-sector Medicare roles. Guess what’s happening right now even as I write this? Some companies are now contemplating dropping private retiree coverage altogether. As the WSJ article puts it…
The deeper concern—apart from imposing senseless business losses in a still-uncertain economy—is that companies will start terminating private retiree coverage, which in turn will boost government costs. The Employee Benefit Research Institute calculates that the 28% subsidy on average will run taxpayers $665 in 2011 and that the tax dispensation is worth $233. The same plan in Medicare costs $1,209.
Given that Congress has already committed the original sin of creating a drug entitlement that crowds out private coverage, $233 in corporate tax breaks to avoid spending $1,209 seems like a deal. If one out of four retirees is now moved into Medicare, the public fisc will take on huge new liabilities.