Such a Deal!

Imagine that you ran a big company and that you wanted to hold down payroll costs.

One way you would do that is to offer nice benefits.  AT&T, John Deere and Caterpillar did exactly that decades ago when they offered to pay for retiree prescription drugs.

Since none of those companies was ever a charitable organization, I have to assume they got wage concessions in exchange for the benefit, and that they were satisfied with the contracts they entered.

In 2003, along came Medicare Part D.

Now every company’s retirees were going to enjoy that benefit, because the taxpayers of the future were going to fund that benefit.  I have to assume that some of the companies paying for drugs complained that it wasn’t fair that they should pay while other companies didn’t, never mind that they agreed to do so in contracts that must have given them a benefit.

But the whole deal, including massive subsidies for the drug companies through prohibition against price bargaining, was part of the Rove strategy to buy a permanent block of reliable voters, and it worked.

All you need to do is look at any Tea Party rally, and you’ll see that half or more of the participants are over 65, and no doubt enjoying the government handout of prescription subsidies, for which they never paid a dime during their working lives.

But what about the private enterprise retirees who had that benefit already?

Turns out that part of the deal was to have the taxpayers pay a subsidy to companies that were paying for drugs, so those companies could continue to fulfill their contractual obligations, but now future taxpayers would foot the bill.  Nice deal, eh?

But wait!  There’s more!

To reward those companies even more for using taxpayer dollars, the 2003 Congress wrote the law so that they could spend that subsidy money purchasing pharmaceuticals, and deduct the spending as if it was their own money.

I suppose the roughly $1 billion a year subsidy and the extra tax deduction for money that came from the taxpayers as a giveaway was small potatoes compared to everything else in that legislation, but the breathtaking chutzpah of the anti-reform crowd now whining about removing this special deal is something to see.

Speaking of chutzpah, how about those companies, as they pay for press releases to trumpet how removal of the tax deduction for spending money that wasn’t theirs to begin with will hurt their profits in the future?  It’s not as if the new law rolls back the cash giveaway for the subsidy itself, just the double-dip of calling it a deductible expense when they are spending our money.

They say they don’t want more welfare.  They say they don’t want government interference.  I think they just don’t want anyone other than their preferred beneficiaries to get government handouts.

That’s why, I suppose, that Michele Bachman’s family collects hundreds of thousands of dollars in farm subsidies and that Georgia Tea Party organizer and former head of the “Georgia Militia” collects Social Security disability, even though he obviously has enough abilities to organize large groups to protest against the government.

You’d think maybe Vanderboegh could hold down a job answering calls for a credit card company, or something, rather than taking his monthly government welfare check, paid for by the rest of us.  My friend with MS also has to use a cane and walk slowly, but she drives an hour each way to work, and supports two children and a mortgage.

I suppose it’s only fair to qualify who is paying so Mr. Bricks-through-their-windows has time to pursue his hobbies — it’s not all of the rest of us, only those who are self-employed or collect wages.  Anyone with the money and advisers to help them turn their income into capital gains or dividends need not be concerned.

It’s all summarized quite well by that nice white-haired lady at an early anti-reform rally carrying her sign saying “Keep Government’s Hands Off My Medicare.”

I think they’re all just afraid that their gravy train might not be as lucrative if the pendulum were to swing toward people who are still working for a living, but can’t afford or can’t get health insurance.

And they’re right.  That subsidy (plus the completely unjustified tax deduction) for the companies that already got compensated by their employees for a drug benefit might get taken away.  That $50 billion a year subsidy now being split between insurance companies and retirees with the means to pay Medicare Advantage premiums would finally be phased out.  The drug companies would have to negotiate pricing with Medicare the way they do with the VA or WalMart.

That’s a lot of government spending and welfare being defended by people supposedly against government spending and welfare.


5 Responses to Such a Deal!

  1. Dan Cullen says:

    Great work…thanks for your cogent analysis!

  2. Bruce B says:

    Ah yes. The beauty of the government picking favorites and subsidizing those they seem worthy of handouts. The Dems subsidize the unions and government workers with taxpayer dollars and the Repubs whomever they deem worthy when they have power.

    As long as the public approves of politicians creating and tinkering with a multi-thousands of pages tax code and tolerates a tax system like we have, bloggers will be able to find abuse after abuse after abuse and unfairness after unfairness after unfairness. The answer is a simpler tax code – just don’t take away my mortgage interest deduction…………That’s much too vital to the economy………….

  3. jill says:

    Well, these companies will now receive a public flogging. Imagine that, hauled before Congress for making a financial disclosure. What country are we living in? Do you approve of this?

    • hhill51 says:

      Jill —

      Perhaps you’re not seeing what might be questionable about the recent spate of “loss” claims from these companies. First of all, they are apparently still going to get the handouts. I disagree with taxing workers to pay for companies’ contracts, but that’s the deal cut by the Administration in 2003.
      The part that was over the top was allowing them to continue to deduct 100% of the purchase price of the drugs, even though a billion dollars of the money they were spending was straight from the taxpayers.
      So when they announce to the world that they won’t be getting another few decades of free tax deductions and attach a dollar amount to that, they are making a number of assumptions, not the least of which is that they will have tax liabilities every year in the future for which they are now claiming a “loss.” Why is it a problem to have them show how they came up with these numbers? One well-respected stock analyst at Credit Suisse has said that the change is a wash. A friend who does accounting and rate setting for utilities has told me that this kind of scam, claiming current losses from lack of future tax benefits for decades, would be illegal and considered fraudulent in those industries.
      I wish I could do that. But I wish I could take a deduction for my current health insurance and medical care payments, the way any company is allowed to do. I can’t.
      The point is that the pendulum swung too far in favor of the corporations, and the people can no longer afford to give them that much welfare, nor give them tax deductions on top of that.
      When the field is leveled, and I can deduct my first dollar of medical expenses and my individual health insurance premiums, then I’ll say the pendulum is closer to equilibrium. Why should you and I subsidize AT&T and then give them a sweetener in the form of a tax deduction equal to the amount of our money when they spend it?
      Of course they are going to claim they can’t afford to go without the tax deductions they get from spending their welfare checks. I’m a little more conservative than that. I don’t think they deserved the handout in the first place.

  4. hhill51 says:

    By all means, we should applaud the conservatives for financing a giveaway to corporate interests with deficit spending and compounding their sin by handing those corporations a tax shelter equal to the size of those corporate welfare payments. I guess every company should also enter contracts and then the taxpayer should step in and cover their obligations, while we’re at it.
    What makes you think this was a ever a good idea?

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