A Closer Look at Health Reform’s Effect on Corporate Profits

With conservatives screaming from the rafters about the elimination of a business tax deduction for retiree benefits in the Democrats’ health reform law, The New York Times responds today with a pretty convincing argument for why the change makes sense.

First, here’s how the 2003 Medicare prescription drug law has benefited companies:

For every $100 the company spends on retiree drug benefits, Medicare sends it a subsidy payment of $28. On top of that, the companies got a rare double tax break. The $28 subsidy is tax-free, and the company was allowed to deduct the entire $100 as a business expense.

Under the new reform law, the 28 percent subsidy remains, and it remains tax free. “But companies will no longer be allowed to deduct the subsidy as if it were an expenditure of their own,” the Times writes.

Sounds reasonable, right? Not in the eyes of the companies that benefit from the current system. They’re claiming that the change will hobble their hiring abilities (i.e., lower their profits). And conservatives are listening.

“This added burden to corporate America would be significant at the best of economic times, but unfortunately we’re living in the worst of times — when every spare corporate dollar should be spent on retaining or hiring new employees,” an emblematic critic wrote recently for Townhall.

“Added burden,” of course, implies an initial burden. But, as Ben Armbruster of Think Progress recently pointed out, some of the companies making the most fuss over the elimination of their pet tax deduction are among those that pay the least to Uncle Sam. It’s tough to cry for Boeing when its actual tax rate, at 3.2 percent, is about one-sixth of a middle class family’s.