Coming as it does somewhat within my area of professional expertise, this is perhaps the most alarming example yet of the complete ignorance of the Obama Administration and Capitol Hill Democrats regarding how business operates – and to think these same people will be voting on overhauling financial services regulation:
The White House political and legislative operations were said to be livid with the announcement by several large U.S. companies that they were taking multi-million or as much as a billion dollar charges because of the new health-care law, the issue was front-and-center with key lawmakers. By last Friday, AT&T, Caterpillar, Deere & Co., and AK Steel Holding Corp. had all announced that they were taking the one-time charges on their first-quarter balance sheets. More companies were expected to make similar announcements this week.
“These are Republican CEOs who are trying to embarrass the President and Democrats in general,” says a White House legislative affairs staffer. “Where do you hear about this stuff? The Wall Street Journal editorial page and conservative websites. No one else picked up on this but you guys. It’s BS.”
On Friday White House chief of staff Rahm Emanuel and Obama senior advisor Valerie Jarrett were calling the CEOs and Washington office heads of the companies that took the financial hits and attacked them for doing so. One Washington office head said that the White House calls were accusatory and “downright rude.”
The companies are taking the charges because in 2013 they will lose a tax deduction on tax-free government subsidies they have had when they give retirees a Medicare Part D prescription-drug reimbursement. Many of these companies have more than 100,000 retirees each. AT&T may have more than three-quarters of a million retirees to cover.
“Most of these people [in the Administration] have never had a real job in their lives. They don’t understand a thing about business, and that includes the President,” says a senior lobbyist for one of the companies that announced the charge. “My CEO sat with the President over lunch with two other CEOs, and each of them tried to explain to the President what this bill would do to our companies and the economy in general. First the President didn’t understand what they were talking about. Then he basically told my boss he was lying. Frankly my boss was embarrassed for him; he clearly had not been briefed and didn’t know what was in the bill.”
It isn’t just the President who didn’t understand his own proposal. Late Friday, House Energy and Commerce Committee Chairman Henry Waxman and Rep. Bart Stupak, chairman of the Oversight and Investigations panel, announced that they would hold hearings in late April to investigate “claims by Caterpillar, Verizon, and Deere that provisions in the new health care reform law could adversely affect their company’s ability to provide health insurance to their employees.”
Read the whole thing. H/T Moe Lane. Then, read Mark Steyn’s explanation of the specific change at issue and why it’s likely to change corporate behavior:
In 2003, Washington blessed a grateful citizenry with the Medicare prescription drug benefit, it being generally agreed by all the experts that it was unfair to force seniors to choose between their monthly trip to Rite-Aid and Tony Danza in dinner theatre.
However, in order to discourage American businesses from immediately dumping all their drug plans for retirees, Congress gave them a modest tax break equivalent to 28% of the cost of the plan.
Fast forward to the dawn of the ObamaCare utopia. In one of a bazillion little clauses in a 2,000-page bill your legislators didn’t bother reading (because, as Congressman Conyers explained, he wouldn’t understand it even if he did), Congress voted to subject the 28% tax benefit to the regular good ol’ American-as-apple-pie corporate tax rate of 35%.
For the purposes of comparison, Sweden’s corporate tax rate is 26.3%, and Ireland’s is 12.5%. But just because America already has the highest corporate tax in the OECD is no reason why we can’t keep going until it’s double Sweden’s and quadruple Ireland’s.
I refer you to the decision last year by the donut chain Tim Hortons, a Delaware corporation, to reorganize itself as a Canadian corporation “in order to take advantage of Canadian tax rates.” Hold that thought: “In order to take advantage of Canadian tax rates” – a phrase hitherto unknown to American English outside the most fantastical futuristic science fiction.
Ask yourself this: If you impose a sudden 35% tax on something, are you likely to get as much of it? Go on, take a wild guess. On the day President Obama signed ObamaCare into law, Verizon sent an e-mail to all its employees warning that the company’s costs “will increase in the short term.”
And in the medium term? Well, U.S. corporations that are able to do so will get out of their prescription drugs plans and toss their retirees onto the Medicare pile. So far just three companies – Deere, Caterpillar and Valero Energy – have calculated that the loss of the deduction will add a combined $265 million to their costs.
There are an additional 3,500 businesses presently claiming the break. The cost to taxpayers of that 28% benefit is about $665 per person. The cost to taxpayers of equivalent Medicare coverage is about $1,200 per person. So we’re roughly doubling the cost of covering an estimated five million retirees.
Now, let me explain this real simple: If you do something that’s going to cost a company a lot of money, they have a whole lot of legal reasons why they have to tell their shareholders that sooner or later. And, if they’re being prudent, they will tell them sooner rather than later when it starts showing up in the company’s cash flow and the stockholders panic. Dennis the Peasant goes through this in a bit more detail, and he and Erick and Ace all look at Waxman’s plan to drag the disclosing CEOs before a Congressional committee to explain why they are daring to inform their shareholders of the impact that the new regulations, specifically the withdrawal of tax breaks, will have on their business.
At least honest leftists would admit that yes, they were doing something genuinely harmful to publicly traded employers, although honest leftists would next try to pass even more laws to prevent the companies from doing anything to pass on the costs to employees, customers and/or taxpayers so as to preserve enough return to shareholders to enable the company to keep raising capital to stay in business. But in the happy-fairy-land of guys like Obama and Waxman, there are never any costs or tradeoffs to heaping new taxes and regulations on businesses in the middle of a recession, and no behavioral incentives changed when you meddle with the tax code.
The level of ignorance here is staggering. George W. Bush understood this stuff. Sarah Palin understands this stuff. Yet, these people whose self-image depends on telling themselves how much smarter than Bush and Palin they are, are continually taken by surprise by these things.
UPDATE: Ben Domenech looks at how Waxman is banking on intimidation but may end up getting more than he bargained for by calling witnesses who have no realistic choice but to contradict him.
3 thoughts on “8-K? What’s An 8-K?”
Well, when you’re a Liberal and beleive that money grows on trees and you can spend your way to prosperity, why wouldn’t you be hopping mad when the real world impugns on the sensibilities of your happy-fairy-land?
Great post, Crank.
This administration reminds me of several salesmen I have worked with. They make all kinds of promises and dictate what their company is capable of and then leave others to figure out how to make it happen. Then they express shock when they are told that what they just promsed isn’t possible in the timeframe they claimed. No sense of reality.
Domanech is not clear on why the CEO’s wouldn’t just step to the mic and tell the truth. I understand these congressional kangaroo courts are ridiculously one-sided, but the witnesses do get their say. And it doesn’t take very long to say, “We have to disclose this because it’s the truth.”
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