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Old 03-31-2010, 02:55 PM
 
Location: Vermont
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I posted this earlier in Politics but I'm thinking I may get more answers here. I'm opening this thread not as an opportunity for people to attack Obama once again, but seeking information.

According to the story on NPR this morning, the reason that these big companies are taking charges on their books is because the new health care law terminates the tax subsidy they were getting for keeping their retirees on their drug coverage. As it was explained on the radio, the Medicare Part D program subsidized these employers to the tune of about 28% of the actual cost of providing the coverage, but allowed them to continue to write off the entire cost, not just the 72% that they were continuing to have to pay.

My question is this: The change in the law means that in the coming years these companies will not get this writeoff, so they will have to pay more in taxes (based on losing the writeoff on the 28% they're not paying).

Why is this a one-time charge, and not just a change in their income and expenditures in each of the years in which they will have to pay these taxes?
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Old 03-31-2010, 05:04 PM
 
Location: Planet Eaarth
8,955 posts, read 18,767,103 times
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Quote:
Originally Posted by jackmccullough View Post
I posted this earlier in Politics but I'm thinking I may get more answers here. I'm opening this thread not as an opportunity for people to attack Obama once again, but seeking information.

According to the story on NPR this morning, the reason that these big companies are taking charges on their books is because the new health care law terminates the tax subsidy they were getting for keeping their retirees on their drug coverage. As it was explained on the radio, the Medicare Part D program subsidized these employers to the tune of about 28% of the actual cost of providing the coverage, but allowed them to continue to write off the entire cost, not just the 72% that they were continuing to have to pay.

My question is this: The change in the law means that in the coming years these companies will not get this writeoff, so they will have to pay more in taxes (based on losing the writeoff on the 28% they're not paying).

Why is this a one-time charge, and not just a change in their income and expenditures in each of the years in which they will have to pay these taxes?
It's not politics at all..It the tax code that pay companies to preform poorly.

If a person would dig into the tax code they would be amazed at all the stuff companies get to write off (thus shifting the tax burden to the taxpayer).

Close a factory....get a write off, pay for medical care....get a write off, wine & dine a customer..get a tax write off, re-do a factory building...write it all off after 1 year of down time... the list goes on and on. That's why I've always felt that a flat tax on business would change the wasteful ways of business overnight!
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Old 03-31-2010, 05:42 PM
 
Location: Great State of Texas
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Here is an excellent article that explains it from a non-political, business viewpoint.

The Associated Press: Companies say health care costs hard to swallow
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Old 03-31-2010, 06:51 PM
 
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The PPACA contains a provision that changes the tax treatment related to a federal subsidy available to sponsors of retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. The subsidy is known as the Retiree Drug Subsidy (RDS). Employers are not currently taxed on the RDS payments they receive. However, as a result of the PPACA and the Reconciliation Bill, RDS payments will effectively become taxable in tax years beginning after December 31, 2012, by requiring the amount of the subsidy received to be offset against the employer's deduction for health care expenses. That is, the change in tax treatment does not affect the taxation of the subsidy itself, but would reduce the employer's deduction for the costs of health care for retirees by the amount of the subsidy received.
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Old 04-01-2010, 03:28 PM
 
Location: Planet Eaarth
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I retired from Caterpillar (one of the big three that were mentioned in the linked story) and can tell you that the day the HCL was signed into law I received a letter from Cat threatening to suspend both my pension and medical benefits. This could only mean that the letters were printed up and mailed well in advance of the signing date!!
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Old 04-01-2010, 03:59 PM
 
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Originally Posted by Tightwad View Post
I retired from Caterpillar (one of the big three that were mentioned in the linked story) and can tell you that the day the HCL was signed into law I received a letter from Cat threatening to suspend both my pension and medical benefits. This could only mean that the letters were printed up and mailed well in advance of the signing date!!
And just because they are not allowed to deduct a federal subsidy received from their taxes. You get money from the government and then get more money by using it as a deduction. Unreal

Now, help me understand, how does HCL impact pension benefits?
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Old 04-02-2010, 06:52 PM
 
Location: Planet Eaarth
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Quote:
Originally Posted by Jaggy001 View Post

Now, help me understand, how does HCL impact pension benefits?
It's not supposed to but this company has a history of using threats against employees to get it's way.

Will it impact my pension? Yes, maybe. Knowing the history of this company and how it think/acts if they don't get their way with medical you can bet they will find a way to take from the pension funds. Oh yes, that's not sour grapes either. Whenever they mention something in short order there after action takes place.
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Old 04-02-2010, 07:57 PM
 
Location: Vermont
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Quote:
Originally Posted by Jaggy001 View Post
The PPACA contains a provision that changes the tax treatment related to a federal subsidy available to sponsors of retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. The subsidy is known as the Retiree Drug Subsidy (RDS). Employers are not currently taxed on the RDS payments they receive. However, as a result of the PPACA and the Reconciliation Bill, RDS payments will effectively become taxable in tax years beginning after December 31, 2012, by requiring the amount of the subsidy received to be offset against the employer's deduction for health care expenses. That is, the change in tax treatment does not affect the taxation of the subsidy itself, but would reduce the employer's deduction for the costs of health care for retirees by the amount of the subsidy received.
Thanks. I understand all that, and it is pretty much what I said in my original post.

My question is why the change in tax deductibility, which will be realized in future years and is contingent on the companies' revenues and expenses in those future years, should be a current charge. Is there a provision in GAAP that requires it?
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Old 04-02-2010, 08:35 PM
 
14,256 posts, read 16,241,674 times
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Quote:
Originally Posted by jackmccullough View Post
Thanks. I understand all that, and it is pretty much what I said in my original post.

My question is why the change in tax deductibility, which will be realized in future years and is contingent on the companies' revenues and expenses in those future years, should be a current charge. Is there a provision in GAAP that requires it?
It is required in ASC 740, Income taxes. This is a US GAAP accounting standards codification from the FASB. Under ASC 740, the impact of the changes in tax law should be immediately recognized in continuing operations in the income statement in the period that includes the date the change is signed into law.

Sadly, I am not a tax guy so don't really understand how this change ends up being such a big hit to some corporations. It might be something to do with actuarial valuations which now have to be recalculated without the benefit of the tax writeoff.
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Old 04-02-2010, 08:38 PM
 
Location: Vermont
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Thanks.
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