The Grasshopper and the Ants
By Joseph Shattan on 3.9.10 @ 6:07AM
Once upon a time, there was a happy-go-lucky grasshopper who lived only to have fun. All through the long summer days, he would sing and dance, and laugh at the industrious ants who were busily preparing for winter. But then cruel winter came, and the grasshopper was starving. In desperation, he approached the ants' nest and begged for food. "You should have danced less and worked more," the ants scolded him, but then, being basically kind-hearted creatures, they decided to give him a few of their hard-won crumbs.
The next summer was exactly like the one before: Once more, the ants worked without pause, while the grasshopper sang and danced. When winter came, he appealed to the ants again, only this time, he brought his 10,000 children along with him. "It's thanks to your kindness," he said, "that I made it through the winter, and was able to father these little ones. Surely, you won't let us all starve to death."
The ants convened a meeting of their Council to decide what to do. On the one hand, they felt a certain responsibility for the grasshopper and his huge brood; on the other hand, feeding 10,000 growing grasshoppers could make a serious dent in their winter provisions.
Finally, one Council member had a brilliant idea. "Let's just take some food from the hardest-working ants. They've got more than enough, and won't mind sharing their good fortune with the needy grasshoppers."
The Council-of-Ants thought this was a splendid plan, and quickly acted on it. As a result, the grasshoppers survived the winter, the ants congratulated themselves on their compassion, and hardly anyone noticed that the hardest-working ants, whose food had been seized, left the nest in disgust.
Summer came around once again, and once again the grasshoppers danced and sang, while the ants toiled and saved. But without the hardest-working ants to do the heavy-lifting, the ants did not get very much accomplished, and barely accumulated enough food to get themselves through the winter.
And then, one cold and snowy day, the ants heard an ominous rumble approaching ever-closer. It was the sound of a million grasshoppers, all converging on their tiny ant-hill. "Since time immemorial," Grandfather Grasshopper solemnly declared, "the ant people have shared their winter provisions with the grasshopper people. We demand that you do so now, immediately, or we'll destroy your nest, and take by force what is rightfully ours."
This is how the Dilemma of the Welfare State, aka the Entitlement Crisis, came into the world.
Friday, April 2, 2010
OBAMA JUSTIFIED STUDENT LOAN TAKEOVER SAYING IT WOULD HELP PAY FOR HEALTH CARE BILL -- WRONG AGAIN
Obama justified his government takeover of student loans saying it would help pay for the health care bill. Now the CBO says this will ADD $52 billion to the deficit. It appears Obama just invents justification for enlarging government control and figures the "commoners" are too apathetic or stupid or entranced by his magnetism to check the facts. So far he's right. If the American people don't awaken from their stupor then perhaps it is time for intelligent citizens to leave the country. Then who will big government feed upon? With the producers gone, only the entitlement loafers will be remain. The question is what will happen then? Will they topple the government to take Obama's amassed personal wealth? Doubtful, he'll be long gone along with his stuffed bank accounts. And he will sit smugly living in luxury saying, I got back at them, Reverend Wright.
CNSNews.com
Obama’s Student Loan Takeover Adds $52 Billion to Deficit According to 'Fair Value' Accounting, Says CBO
Wednesday, March 31, 2010
By Edwin Mora
President Barack Obama (AP Photo)
(CNSNews.com) -- The student loan overhaul legislation signed into law by President Barack Obama on Tuesday could add $52 billion to the deficit between 2010 and 2020 when the cost of the market risks and administrative expenses of the loans are taken into consideration, the non-partisan Congressional Budget Office (CBO) reported.
“CBO recently estimated that whereas loans issued in the direct loan program between 2010 and 2020 would reduce the deficit by a total of $68 billion under FCRA accounting, those loans would increase the deficit by $52 billion on a fair value basis,” reads the March 2010 CBO study, Policy Options for Federal Student Loan Programs.( See p. IX of the Summary.)
The CBO report further notes that it explained its calculations about the budgetary impact of the administration's plan to change the federal student loan programs and the $52-billion addition to the deficit in a March 15 letter sent to Sen. Judd Gregg (R-N.H.), the ranking member of the Senate Budget Committee.
In the study, the CBO explains how the accounting mandated through the Federal Credit Reform Act (FCRA) is the standard procedure used to record the budgetary costs of the government’s direct and guaranteed loan programs.
However, the CBO notes that FCRA cost estimates exclude the value of “market risks” and the loan programs’ “administrative expenses” while the CBO’s “fair value” estimates takes them into account.
This discrepancy between the two estimates results in the FCRA figure being a less “comprehensive” appraisal of the true cost to taxpayers of the federal government’s direct student loan program, according to the CBO report.
“Fair-value subsidy estimates, which include the cost of risk and administrative costs, provide a more comprehensive measure that allows the costs of the two programs to be compared on a level playing field,” states the study.
It further reports, “The FCRA methodology does not include the costs to taxpayers that stem from certain risks involved in lending -- risks that private investors would require compensation to bear.”
“In particular, although the FCRA methodology accounts for average losses from defaults, it does not recognize a cost for the risk that losses from defaults will be higher during periods of market stress, when resources are scarce and hence most valuable,” reads the report. “Such ‘market risk’ is excluded from FCRA estimates because that methodology discounts expected future cash flows at Treasury borrowing rates rather than at higher interest rates that incorporate the price of risk.”
Furthermore, according to the study, the “FCRA estimates do not include administrative expenses, which are recorded separately in the budget each year on a cash basis (that is, undiscounted). That treatment mixes together current year administrative costs for outstanding loans and for newly originated loans.”
Education Secretary Arne Duncan. (AP Photo/J. Scott Applewhite)
The federal government operates two student loan programs. One is the Federal Family Education Loan program (FFEL), which refers to the government loan guarantees to private lenders that offer student loans. The other is the William D. Ford Federal Direct Loan Program (FDLP), in which the Department of Education issues direct loans to borrowers.
On Tuesday, Mar. 30, President Obama signed into law his proposed changes to the student loan program as part of the Health Care and Education Reconciliation Act of 2010 that passed the Senate last Thursday by a 56 to 43 vote, with Republicans unanimously voting against it.
Despite the CBO highlighting that under “fair-value” estimates the direct loan program would increase the deficit between 2010 and 2020, the student loan overhaul calls for eliminating the federal government’s loan guarantees -- which subsidize private banks and other financial institutions for making loans -- and replacing them with direct loans made by the Department of Education. The new law apparently will place more strain on the direct loan program.
As of July 1, all new government-backed student loans will come directly from the federal government. The Department of Education will hire private companies, under performance-based contracts, to disburse and collect the new loans.
Nevertheless, after signing the student loan overhaul bill at the Northern Virginia Community College in Alexandria, Va., the president said: "By cutting out the middleman, we'll save the American taxpayers $68 billion in the coming years. That's real money."
During a telephone conference on Tuesday, former Virginia Gov. Tim Kaine, now the chairman of the Democratic National Committee (DNC), said the new student loan law would reduce the deficit as well as spending.
“What we’re doing is we’re taking a program and we’re going to save $68 billion dollars in subsidies that were being paid by the federal government to financial insitutitions,” said Kaine.
“We’re taking that $68 billion over the next 10 years out of the system, we’re going to use $10 billion of it to pay down the deficit,” he said, “and we’re going to use north of $50 billion of it to expand college access to more students and make the Pell Grant amount higher. … So this is a net benefit in terms of reducing the deficit and reducing spending.”
Savings for taxpayers stemming from the new student loan law are about $22 million lower under the “fair-value” assessment than they are under the FCRA estimate.
According to the CBO study, “The savings from implementing the President’s proposal to replace FFEL loans with direct loans decline from a total of $62 billion over the 2010–2020 period under FCRA accounting to $40 billion on a fair-value (accounting).”
“The savings are smaller on a fair-value basis because that measure, which takes into account the risk associated with those payments, assigns them a lower cost to the government and thus finds a smaller benefit from eliminating them,” said the CBO.
Furthermore, the CBO study revealed that under the “fair-value” estimates, the overall student loan program, including both direct and loan guarantees, would add to the deficit.
“CBO’s calculations indicate that if subsidies were computed on a fair-value basis, student loans made in both the direct and guaranteed loan programs would impose costs on the federal government, and those costs would represent a significant share of the principal value of the loans issued,” stated the study.
While a direct loan program may have “a negative subsidy rate of 9 percent under FCRA (meaning that it reduces the deficit), the same loan has a positive subsidy rate of 12 percent on a fair-value basis,” said the CBO.
Nevertheless, the study indicated that under the “fair-value” and FCRA assessments, the government guaranteed loan program ends up being more expensive.
The study also noted, “CBO’s fair-value subsidy estimates are highly sensitive to assumptions about a variety of uncertain factors, such as the effect of risk on discount rates and the allocation of federal administrative costs between programs.”
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Viewer CommentsThe following comments are posted by our readers and are not necessarily the opinions of either CNSNews.com or the story’s author. To be considered for publication, comments must adhere to the Terms of Use for posting to this Web site. Thank you.
Showing 1-10 of 17 Comments Newer to Older Older to Newer 1 2 Next Loading...
Ozark_Sunshine (19 hours ago) Thanks blackhattt.
Swish (19 hours ago) The agenda of socialism is more than a little scary when viewed from afar. When you are getting to live with it... Be honest now... none of us are actually leaving the country, but how many of you have done the internet search to see if there are other nations in the world with a similar system of government where we could move...
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rowley (1 day ago) It's just another way for the politically appointed bureaucrat to control citizens and buy votes for the party in power. They will be paying for these voters by choosing who will and who won't be given loans. The money the Fed. is lending does not exist and must be freshly printed. It must be paid back by the children and grandchildren of the loan's recipient. Is this a good deal or is this an April Fool's Joke?
Jack Kinch(1uncle) (1 day ago) More socialism. States pass amendment- Congress shall add no amendments to bills before congress. Each subject shall be taken up and voted on separately.Example: No student loans on health bill.
bargal (1 day ago) All the lawmakers we have are on the take and I hope some hurries and takes them as soon as possible. TERM LIMITS AND NO CHANCE OF GETTING BACK IN AFTER X AMOUNT OF TIME PASSES. TERM LIMITS AND THEN THEY ARE OUT OF THE GOVERNMENT FOREVER, and then maybe we can get some that deserve it, put behind bars where they belong
What a mess (1 day ago) Seriously, CBO to little too late. Back peddling now only makes you look even more ridiculous. How do you have jobs? Were you paid off to stay quiet until the law was signed? One only has to wonder. Enjoy the mess you were part of creating.
blackhattt (1 day ago) USSANEWS.com - enough said
moriarity (1 day ago) If you listen closely you can hear the moronic masses chanting......Yes we can, Yes we can! This Country undoubtedly harbors the most ignorant electorate on the face of the globe. They even vote to willfully surrender their liberty....with great relish!
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CNSNews.com
Obama’s Student Loan Takeover Adds $52 Billion to Deficit According to 'Fair Value' Accounting, Says CBO
Wednesday, March 31, 2010
By Edwin Mora
President Barack Obama (AP Photo)
(CNSNews.com) -- The student loan overhaul legislation signed into law by President Barack Obama on Tuesday could add $52 billion to the deficit between 2010 and 2020 when the cost of the market risks and administrative expenses of the loans are taken into consideration, the non-partisan Congressional Budget Office (CBO) reported.
“CBO recently estimated that whereas loans issued in the direct loan program between 2010 and 2020 would reduce the deficit by a total of $68 billion under FCRA accounting, those loans would increase the deficit by $52 billion on a fair value basis,” reads the March 2010 CBO study, Policy Options for Federal Student Loan Programs.( See p. IX of the Summary.)
The CBO report further notes that it explained its calculations about the budgetary impact of the administration's plan to change the federal student loan programs and the $52-billion addition to the deficit in a March 15 letter sent to Sen. Judd Gregg (R-N.H.), the ranking member of the Senate Budget Committee.
In the study, the CBO explains how the accounting mandated through the Federal Credit Reform Act (FCRA) is the standard procedure used to record the budgetary costs of the government’s direct and guaranteed loan programs.
However, the CBO notes that FCRA cost estimates exclude the value of “market risks” and the loan programs’ “administrative expenses” while the CBO’s “fair value” estimates takes them into account.
This discrepancy between the two estimates results in the FCRA figure being a less “comprehensive” appraisal of the true cost to taxpayers of the federal government’s direct student loan program, according to the CBO report.
“Fair-value subsidy estimates, which include the cost of risk and administrative costs, provide a more comprehensive measure that allows the costs of the two programs to be compared on a level playing field,” states the study.
It further reports, “The FCRA methodology does not include the costs to taxpayers that stem from certain risks involved in lending -- risks that private investors would require compensation to bear.”
“In particular, although the FCRA methodology accounts for average losses from defaults, it does not recognize a cost for the risk that losses from defaults will be higher during periods of market stress, when resources are scarce and hence most valuable,” reads the report. “Such ‘market risk’ is excluded from FCRA estimates because that methodology discounts expected future cash flows at Treasury borrowing rates rather than at higher interest rates that incorporate the price of risk.”
Furthermore, according to the study, the “FCRA estimates do not include administrative expenses, which are recorded separately in the budget each year on a cash basis (that is, undiscounted). That treatment mixes together current year administrative costs for outstanding loans and for newly originated loans.”
Education Secretary Arne Duncan. (AP Photo/J. Scott Applewhite)
The federal government operates two student loan programs. One is the Federal Family Education Loan program (FFEL), which refers to the government loan guarantees to private lenders that offer student loans. The other is the William D. Ford Federal Direct Loan Program (FDLP), in which the Department of Education issues direct loans to borrowers.
On Tuesday, Mar. 30, President Obama signed into law his proposed changes to the student loan program as part of the Health Care and Education Reconciliation Act of 2010 that passed the Senate last Thursday by a 56 to 43 vote, with Republicans unanimously voting against it.
Despite the CBO highlighting that under “fair-value” estimates the direct loan program would increase the deficit between 2010 and 2020, the student loan overhaul calls for eliminating the federal government’s loan guarantees -- which subsidize private banks and other financial institutions for making loans -- and replacing them with direct loans made by the Department of Education. The new law apparently will place more strain on the direct loan program.
As of July 1, all new government-backed student loans will come directly from the federal government. The Department of Education will hire private companies, under performance-based contracts, to disburse and collect the new loans.
Nevertheless, after signing the student loan overhaul bill at the Northern Virginia Community College in Alexandria, Va., the president said: "By cutting out the middleman, we'll save the American taxpayers $68 billion in the coming years. That's real money."
During a telephone conference on Tuesday, former Virginia Gov. Tim Kaine, now the chairman of the Democratic National Committee (DNC), said the new student loan law would reduce the deficit as well as spending.
“What we’re doing is we’re taking a program and we’re going to save $68 billion dollars in subsidies that were being paid by the federal government to financial insitutitions,” said Kaine.
“We’re taking that $68 billion over the next 10 years out of the system, we’re going to use $10 billion of it to pay down the deficit,” he said, “and we’re going to use north of $50 billion of it to expand college access to more students and make the Pell Grant amount higher. … So this is a net benefit in terms of reducing the deficit and reducing spending.”
Savings for taxpayers stemming from the new student loan law are about $22 million lower under the “fair-value” assessment than they are under the FCRA estimate.
According to the CBO study, “The savings from implementing the President’s proposal to replace FFEL loans with direct loans decline from a total of $62 billion over the 2010–2020 period under FCRA accounting to $40 billion on a fair-value (accounting).”
“The savings are smaller on a fair-value basis because that measure, which takes into account the risk associated with those payments, assigns them a lower cost to the government and thus finds a smaller benefit from eliminating them,” said the CBO.
Furthermore, the CBO study revealed that under the “fair-value” estimates, the overall student loan program, including both direct and loan guarantees, would add to the deficit.
“CBO’s calculations indicate that if subsidies were computed on a fair-value basis, student loans made in both the direct and guaranteed loan programs would impose costs on the federal government, and those costs would represent a significant share of the principal value of the loans issued,” stated the study.
While a direct loan program may have “a negative subsidy rate of 9 percent under FCRA (meaning that it reduces the deficit), the same loan has a positive subsidy rate of 12 percent on a fair-value basis,” said the CBO.
Nevertheless, the study indicated that under the “fair-value” and FCRA assessments, the government guaranteed loan program ends up being more expensive.
The study also noted, “CBO’s fair-value subsidy estimates are highly sensitive to assumptions about a variety of uncertain factors, such as the effect of risk on discount rates and the allocation of federal administrative costs between programs.”
Like this story? Then sign up to receive our free daily E-Brief newsletter
Viewer CommentsThe following comments are posted by our readers and are not necessarily the opinions of either CNSNews.com or the story’s author. To be considered for publication, comments must adhere to the Terms of Use for posting to this Web site. Thank you.
Showing 1-10 of 17 Comments Newer to Older Older to Newer 1 2 Next Loading...
Ozark_Sunshine (19 hours ago) Thanks blackhattt.
Swish (19 hours ago) The agenda of socialism is more than a little scary when viewed from afar. When you are getting to live with it... Be honest now... none of us are actually leaving the country, but how many of you have done the internet search to see if there are other nations in the world with a similar system of government where we could move...
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rank (1 day ago) Remember.... Figures don't lie.... BUT LIARS FIGURE! This is bad enough, however,wait until you see just how dramatic the Medicaid adjustments impact your state taxes, as the result of Obamacare. Then wait until the smaller compamies have a chance to analyze the impact that Obamacare will have on their bottom lines. We are in for one heck of a wild ride, and I hope we survive it!
rowley (1 day ago) It's just another way for the politically appointed bureaucrat to control citizens and buy votes for the party in power. They will be paying for these voters by choosing who will and who won't be given loans. The money the Fed. is lending does not exist and must be freshly printed. It must be paid back by the children and grandchildren of the loan's recipient. Is this a good deal or is this an April Fool's Joke?
Jack Kinch(1uncle) (1 day ago) More socialism. States pass amendment- Congress shall add no amendments to bills before congress. Each subject shall be taken up and voted on separately.Example: No student loans on health bill.
bargal (1 day ago) All the lawmakers we have are on the take and I hope some hurries and takes them as soon as possible. TERM LIMITS AND NO CHANCE OF GETTING BACK IN AFTER X AMOUNT OF TIME PASSES. TERM LIMITS AND THEN THEY ARE OUT OF THE GOVERNMENT FOREVER, and then maybe we can get some that deserve it, put behind bars where they belong
What a mess (1 day ago) Seriously, CBO to little too late. Back peddling now only makes you look even more ridiculous. How do you have jobs? Were you paid off to stay quiet until the law was signed? One only has to wonder. Enjoy the mess you were part of creating.
blackhattt (1 day ago) USSANEWS.com - enough said
moriarity (1 day ago) If you listen closely you can hear the moronic masses chanting......Yes we can, Yes we can! This Country undoubtedly harbors the most ignorant electorate on the face of the globe. They even vote to willfully surrender their liberty....with great relish!
Post New CommentYou must be logged in to leave comments! Click here to log in.Comment Successfully Flagged
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Related ArticlesSen. Snowe: ‘Absolutely’ Cut Spending $6 Trillion to Balance Federal Budget Sen. Conrad: Raise Revenues and Cut Spending to Address $6 Trillion in Projected New Federal DebtMcCain Says He Supports Cutting Federal Spending Enough to Counter the $6 Trillion in New Debt CBO Predicts over Next Ten YearsHoyer: It's Good for People to Make Money Because Then They Can Pay TaxesCBO: Finance Committee Health Bill Subsidizes Health Insurance for Americans Up to 400% of Poverty Level But Still Reduces Deficit by $81 Billion84 Percent Say Middle Class Will Have to Suffer to Reduce Federal Budget DeficitRep. Burgess: Government Can Force Us to Buy General Motors Products If Obamacare Mandate Upheld in CourtEducation Secretary Denies Govt Takeover of Student Loan Programs Will Hurt Private Sector, Cause Job LossCBO Says Govt to Collect $69 Billion in Tax Penalties From Health Care Law’s Insurance Mandate in First 10 YearsSen. Carper: ‘Not Likely’ That States Can Overturn Individual Mandate in Health Care LawRelated Videos McIntosh: GOP Must Be 'Truthful To Principles' To Curb Federal Spending McCain Calls for Massive Spending Cuts Rep. Bachmann: Do We Want ‘To Watch Ourselves Collapse From Our Own Welfare State?
AND THEY JUST KEEP COMING ... ANOTHER SURPRISE FROM THE BILL WE WERE NOT PERMITTED TO READ
Another one of those great surprises Pelosi said we would get to read only AFTER we voted. "The provision would deal a significant blow to corporate profits and would discourage companies from hiring more workers." The president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.” White House officials defended the provision, saying it was a deliberate effort to eliminate what they said was an unusually generous tax loophole. So those transparent little devils in the White House purposely kept this surprise under wraps to make sure we didn't read this abhorrent monster of a bill until after they had forced it on the country.
http://www.nytimes.com/2010/03/30/business/30subsidy.html
Companies Push to Repeal Provision of Health Law
By STEVEN GREENHOUSE
An association representing 300 large corporations urged President Obama and Congress on Monday to repeal a provision of the health care overhaul that prompted AT&T, Caterpillar and other companies to announce substantial charges for the current quarter.
The association, the American Benefits Council, said the provision — which reduces the tax deductions for companies with drug coverage for their retired employees — would deal a significant blow to corporate profits and would discourage companies from hiring more workers.
AT&T announced last week that it was taking a $1 billion charge because of the provision. Deere & Company announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge.
Many companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. But some corporate critics asserted that the companies’ rapid response to the health legislation was aimed at pressing the administration to repeal the provision.
James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.”
White House officials defended the provision, saying it was a deliberate effort to eliminate what they said was an unusually generous tax loophole.
They said the overall health care overhaul would save businesses more than $150 billion over the next decade by reducing health care inflation.
“We’re confident that the benefits are going to accrue and strengthen business’s bottom line,” said Linda Douglass, the communications director for the White House Health Reform Office.
When Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree — and also allowing them to deduct those subsidies from their income taxes.
Under the health care overhaul, the federal government will continue providing those subsidies — amounting to 28 percent of a drug plan’s costs — but companies will lose the tax break.
In a telephone news conference on Monday, Mr. Klein cited a study by Towers Watson, a consulting firm, saying the loss of the deduction would cost companies $14 billion in future years.
“Particularly in this economic environment, it makes no sense to impose this type of a hit on companies’ financial statements,” Mr. Klein said. The provision takes effect in 2013, but accounting rules require companies to take immediate charges equal to the current value of any known hit to future profits.
Defending the provision, White House officials said it was rare for companies to obtain a tax-free federal subsidy and be able to deduct it as well.
These officials added that the health care legislation contained a $5 billion subsidy for companies that maintain health plans to early retirees.
“Let’s put these changes into perspective,” Ms. Douglass said. “While accounting rules required companies to book this cost upfront, there are a whole set of benefits that will accrue to companies over time that they’re not booking upfront.”
Federal officials estimate that the provision will raise $4.5 billion to $5 billion in revenue over 10 years, but Mr. Klein maintained that it would cost the government more than it raised.
About 6.3 million retirees — an estimated two-thirds of them from the private sector — are covered by employer drug plans. Mr. Klein cited a study by the Moran Company, a health care consulting group, estimating that as a result of the legislation, drug coverage would be altered for 1.5 million to 2 million retirees.
Many companies, he said, will stop providing drug coverage to retirees and will instead push them into Medicare Part D, causing the government to pay for their coverage.
AT&T said in a filing to the Securities and Exchange Commission, “As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company.”
Henry A. Waxman, a California Democrat who is chairman of the House Energy and Commerce Committee, criticized the charges by the companies, asserting that the health reform would save companies more money than it cost them.
Mr. Waxman sent AT&T, Caterpillar and Deere a sharp letter, questioning the charges and saying he wanted top officials from those companies to testify at an April 21 hearing he has scheduled on the issue.
Mr. Waxman and Bart Stupak, a Michigan Democrat who is chairman of the House Commerce Committee’s subcommittee on oversight and investigations, wrote to AT&T’s chairman, Randall L. Stephenson, “The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern.”
Their letter said AT&T’s moves “appear to conflict with independent analyses,” including a finding by the Business Roundtable, an association of chief executives, that health care reform would reduce insurance cost trends for businesses by more than $3,000 for each employee over the next 10 years.
Responding to such criticism, Mr. Klein said: “These announcements are required under accounting rules, and we should all expect more of such announcements in coming days and weeks. We’re very troubled that these announcements have been challenged by officials in Obama administration and Congress.”
Many employer plans for retiree drug coverage are part of union contracts. In December, the A.F.L.-C.I.O.’s legislative director, Bill Samuel, joined Mr. Klein in writing to Senator Harry Reid, the majority leader, urging the Senate not to enact this provision.
Gerry Shea, the A.F.L.-C.I.O.’s chief strategist on health care, stopped short of calling for a repeal of the provision. “We’re very concerned about the disruption that could be caused because of this, with people being pushed out of employer plans,” he said. “With all the changes we’re looking at because of the new health legislation, we feel you don’t need this.”
Mr. Klein argued that the provision would undercut Mr. Obama’s job creation plans. “If companies are going to take a hit like this on their financial statements that will certainly hurt their ability to borrow in the marketplace and make the type of investments that will retain and create jobs,” he said.
But White House officials said the provision would not affect job creation because it does not take effect for three years and any charge for a given year would not be large.
http://www.nytimes.com/2010/03/30/business/30subsidy.html
Companies Push to Repeal Provision of Health Law
By STEVEN GREENHOUSE
An association representing 300 large corporations urged President Obama and Congress on Monday to repeal a provision of the health care overhaul that prompted AT&T, Caterpillar and other companies to announce substantial charges for the current quarter.
The association, the American Benefits Council, said the provision — which reduces the tax deductions for companies with drug coverage for their retired employees — would deal a significant blow to corporate profits and would discourage companies from hiring more workers.
AT&T announced last week that it was taking a $1 billion charge because of the provision. Deere & Company announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge.
Many companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. But some corporate critics asserted that the companies’ rapid response to the health legislation was aimed at pressing the administration to repeal the provision.
James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.”
White House officials defended the provision, saying it was a deliberate effort to eliminate what they said was an unusually generous tax loophole.
They said the overall health care overhaul would save businesses more than $150 billion over the next decade by reducing health care inflation.
“We’re confident that the benefits are going to accrue and strengthen business’s bottom line,” said Linda Douglass, the communications director for the White House Health Reform Office.
When Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree — and also allowing them to deduct those subsidies from their income taxes.
Under the health care overhaul, the federal government will continue providing those subsidies — amounting to 28 percent of a drug plan’s costs — but companies will lose the tax break.
In a telephone news conference on Monday, Mr. Klein cited a study by Towers Watson, a consulting firm, saying the loss of the deduction would cost companies $14 billion in future years.
“Particularly in this economic environment, it makes no sense to impose this type of a hit on companies’ financial statements,” Mr. Klein said. The provision takes effect in 2013, but accounting rules require companies to take immediate charges equal to the current value of any known hit to future profits.
Defending the provision, White House officials said it was rare for companies to obtain a tax-free federal subsidy and be able to deduct it as well.
These officials added that the health care legislation contained a $5 billion subsidy for companies that maintain health plans to early retirees.
“Let’s put these changes into perspective,” Ms. Douglass said. “While accounting rules required companies to book this cost upfront, there are a whole set of benefits that will accrue to companies over time that they’re not booking upfront.”
Federal officials estimate that the provision will raise $4.5 billion to $5 billion in revenue over 10 years, but Mr. Klein maintained that it would cost the government more than it raised.
About 6.3 million retirees — an estimated two-thirds of them from the private sector — are covered by employer drug plans. Mr. Klein cited a study by the Moran Company, a health care consulting group, estimating that as a result of the legislation, drug coverage would be altered for 1.5 million to 2 million retirees.
Many companies, he said, will stop providing drug coverage to retirees and will instead push them into Medicare Part D, causing the government to pay for their coverage.
AT&T said in a filing to the Securities and Exchange Commission, “As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company.”
Henry A. Waxman, a California Democrat who is chairman of the House Energy and Commerce Committee, criticized the charges by the companies, asserting that the health reform would save companies more money than it cost them.
Mr. Waxman sent AT&T, Caterpillar and Deere a sharp letter, questioning the charges and saying he wanted top officials from those companies to testify at an April 21 hearing he has scheduled on the issue.
Mr. Waxman and Bart Stupak, a Michigan Democrat who is chairman of the House Commerce Committee’s subcommittee on oversight and investigations, wrote to AT&T’s chairman, Randall L. Stephenson, “The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern.”
Their letter said AT&T’s moves “appear to conflict with independent analyses,” including a finding by the Business Roundtable, an association of chief executives, that health care reform would reduce insurance cost trends for businesses by more than $3,000 for each employee over the next 10 years.
Responding to such criticism, Mr. Klein said: “These announcements are required under accounting rules, and we should all expect more of such announcements in coming days and weeks. We’re very troubled that these announcements have been challenged by officials in Obama administration and Congress.”
Many employer plans for retiree drug coverage are part of union contracts. In December, the A.F.L.-C.I.O.’s legislative director, Bill Samuel, joined Mr. Klein in writing to Senator Harry Reid, the majority leader, urging the Senate not to enact this provision.
Gerry Shea, the A.F.L.-C.I.O.’s chief strategist on health care, stopped short of calling for a repeal of the provision. “We’re very concerned about the disruption that could be caused because of this, with people being pushed out of employer plans,” he said. “With all the changes we’re looking at because of the new health legislation, we feel you don’t need this.”
Mr. Klein argued that the provision would undercut Mr. Obama’s job creation plans. “If companies are going to take a hit like this on their financial statements that will certainly hurt their ability to borrow in the marketplace and make the type of investments that will retain and create jobs,” he said.
But White House officials said the provision would not affect job creation because it does not take effect for three years and any charge for a given year would not be large.
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