In the wake of Washington's health-care overhaul, some companies are taking big one-time charges for anticipated costs, fanning tension with the administration over the legislation's impact on corporate America.
Three companies that were among vocal opponents of the legislation have warned they would see an immediate impact on their earnings as a result of the loss of deductions on tax-free subsidies they receive for providing retiree prescription-drug benefits.
On Thursday, Deere & Co. said it would take a $150 million one-time charge in the current quarter related to the loss of deductions. Earlier in the week, Caterpillar Inc. reported a $100 million charge and AK Steel recorded a $31 million charge.
Beginning in 2006, companies have received a 28% federal subsidy, up to $1,330 per retiree, tax-free, to help pay for prescription-drug coverage. Until now, companies could deduct the subsidy from their taxes, essentially getting a second benefit from the money. Under the new law, companies will no longer be able to deduct the subsidy, but it remains tax-free.
Although the changes don't go into effect until 2013, companies say they have to take the charge to earnings now, to reflect the loss of the future tax deductions. In all, the S&P 500 companies will take a combined hit of $4.5 billion to first-quarter earnings, estimates David Zion, an analyst with Credit Suisse.
Administration officials say companies are exaggerating the impact of the loss of the deduction because of their general unhappiness with health reform.
VH: Henry Waxman of California, chairman of the Oversight and Investigations panel, announced plans to hold a hearing on this issue. This means that he wants to put the CEO's of these companies under the hot lights and intimidate them. You have to love Chicago politics.
4 comments:
These companies are the first ones to get what the impact of this is going to be. The next wave will be the small business owners, who don't have fancy pants accountants keeping track of all this. For the last year I have been learning the art of running an single member LLC and working as an independent contractor. There will probably be a rush of people moving away from starting businesses that hire employees. I recently formed a partnership with a friend, and one of the first goals of our business is to do it all without having to hire employees. We might work with independent contractors, but no employees, period.
I hope that the CEOs tell these parasites on the hill to go get fucked.
Or they could stand up and proudly say, "I am Jon Galt!"
Meh, not gonna happen.
yes, because any kind of government representative from california knows exactly the economical impact of legislation
/extreme sarcasm.
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