Democrats writing down American wealth

Opinion Journal:

It's been a banner week for Democrats: ObamaCare passed Congress in its final form on Thursday night, and the returns are already rolling in. Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill, in what has become a wave of such corporate losses.

This wholesale destruction of wealth and capital came with more than ample warning. Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. We and others warned this would lead to AT&T-like results, but like so many other ObamaCare objections Democrats waved them off as self-serving or "political."


Meanwhile, Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment "appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."

In other words, shoot the messenger. Black-letter financial accounting rules require that corporations immediately restate their earnings to reflect the present value of their long-term health liabilities, including a higher tax burden. Should these companies have played chicken with the Securities and Exchange Commission to avoid this politically inconvenient reality? Democrats don't like what their bill is doing in the real world, so they now want to intimidate CEOs into keeping quiet.

On top of AT&T's $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.

... The consulting firm Towers Watson estimates that the total hit this year will reach nearly $14 billion, unless corporations cut retiree drug benefits when their labor contracts let them.


I think that estimate is conservative. AT&T is a long way from being the largest company in America with drug benefits for retirees. What this demonstrates is the arrogance of liberals when it comes to their don't care attitude toward business.

If Waxman is going to try for one of his patented show trials the Republicans on the committee should call the SEC's chief accountant to explain the consequences of not reporting.

Investor's Business Daily has more on the write downs which were predicted by several in a letter to House and Senate leaders.


"For months, the American Benefits Council, along with several employers and labor unions, warned that the retiree drug subsidy tax in the health care legislation would impose an enormous hit on company financial statements as soon as the bill was signed into law," said James Klein, president of the American Benefits Council, in a statement on Friday.

Besides Deere, the letter was signed by Boeing, Con-Way Freight, Exelon, Navistar, Verizon, Caterpillar, MetLife, Public Service Enterprise Group and Xerox.


In an e-mail titled "President Obama Signs Health Care Legislation" sent to all employees last Tuesday night, telecom giant Verizon warned that "we expect that Verizon's costs will increase in the short term." This is just one effect of one new tax.

Medical device maker Medtronic has warned that new taxes on its products could force it to lay off 1,000 workers. The tax on medical devices will hurt businesses such as Zoll Medical Corp., which is situated in the Massachusetts of Sen. Scott Brown and employs 1,600 people in the U.S.

"We believe that the tax will cost us somewhere between $5 million and $10 million a year," Richard Packer, Zoll's chairman and chief executive officer, told Byron York of the Washington Examiner. "Our profit in 2009 was $9.5 million."


There will be more repercussions from this bad legislation.


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