Sunday, March 28, 2010

Say What??? Conservatives Complaining About the Elimination of Corporate Welfare Associated With Socialized Medicine

Now, I have heard everything. Conservatives are bascially complaining about the elimination of corporate welfare associated with a socialized medical plan (i.e., Medicare). Dissenting Justice detailed part of the story in an earlier post. Here is a brief summary.

The healthcare reforms have eliminated a double-benefit that corporations received if they paid for prescription costs of Medicare beneficiaries.  Under the old plan, the government subsidized 28% of the costs associated with the companies' drug expenditures, but companies also got to deduct the full amount of their expenditures -- including those covered by the 28% subsidy -- on their tax returns. Basically, companies received money from the government and were able to write off that same money as an expense -- rather than having to claim it as income or treat it as neutral.

The healthcare legislation does not eliminate the subsidy. The healthcare legislation does not make the subsidy taxable. Instead, the healthcare legislation simply disallows the corporate tax write-off for businesses that take advantage of the subsidy. In other words, companies can no longer deduct as a business expense the drug costs paid for by the federal government. Instead, they can only deduct their own share (or 72%) of those expenses.  The reform sounds quite reasonable -- except to conservatives.

Moved by dramatic press releases by corporations that will no longer get to double-dip, conservative media are fuming and using the corporate press releases to condemn the healthare legislation. Some conservative commentators have misrepresented the impact of the legislation, arguing that it eliminates the subsidy (which it does not do). Legal Insurrection, for example, asserts that "the chickens already are coming home to roost" as a result of healthcare reform and that the legislation causes the "cutback of subsidies for prescription drug benefit programs for retirees."  The Volokh Conspiracy similarly contends that the legislation forces companies to write-down substantial amounts of money because it enacts the "loss of a tax-free subsidy. . . ."

Conservatives are simply wrong on this issue.  Consider how two liberal rags, the Wall Street Journal and the Dallas Morning News, analyze the contested reform (yes - sarcasm).

The Wall Street Journal reports that:
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 (emphasis added).
The Dallas Morning News offers a similar analysis:
Previously, companies could get tax-free subsidies to help pay for prescription drug coverage for retired workers and, on top of that, could deduct those subsidies from their total tax bill.
Under the new law, the original subsidies will still be tax-free, but the companies no longer will be allowed to deduct the subsidy from their total taxes (emphasis added).
My Take
It is unclear why -- outside of an utter lack of understanding or a desire to criticize anything associated with the healthcare legislation -- conservatives are rallying to defend the corporations. As numerous media outlets have reported, the legislation simply eliminates a double-benefit for corporations; it does not, however, repeal the subsidy or make it taxable. Accordingly, conservatives are effectively complaining that the federal government is getting rid of corporate welfare associated with socialized medicine (i.e., Medicare). That's a pretty difficult position to reconcile with conservative values.


Matt P. said...

From your link to the Examiner article wouldn't it be more accurate to say that Democrats (i.e. Waxman) are complaining that corporations are filing their SEC docs?

I don't see the GOP forcing heads of companies into an investigative subcommittee to explain themselves.

GC5 said...


Seems clear that the reason this is a problem is that the subsidizing the corporations was cheaper than picking up all the retirees under Medicare D. Guess what's going to happen now? Got it one: Corporations will drop their prescription coverage the gov't will be picking up the whole tab. While the gov't probably should not have picked up any of it in the first place (and wouldn't if republicans were truly about small gov't), the provision in the enw law was billed as a cost saver. Due to the law of unintended consequences, it probably will not be.

It will either: (a) cost jobs and tax revenue as companies struggle to remain profitable (or keep profits up), or (b) cause companies to drop drug coverage. As a result, it is likely to cost money.

Republicans may have been hypocrits for proposing Part D in the first place, but that doesn't make their criticisms wrong here.

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