By brandonwbarrios
Due to government intervention in private industry it is beneficial for corporations to waste billions of dollars lobbying government to protect or achieve profits or market share instead of earning it through the innovation of a product, service or any advancement that progresses our society. Government intervention and its consequential lobbying is truly an enemy of progress.
As reported on Market Ticker:
On March 23, 2010, the President signed into law comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590). Included among the major provisions of the law is a change in the tax treatment of the Medicare Part D subsidy. AT&T Inc. (“AT&T”) intends to take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change. 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.
Read the rest here. Consequences of Health Care: Valuations
The above article briefly sums up one of the ways the administration plans on paying for health care reform—redistributing wealth between private industries owned by private shareholders. Inevitably, this redistribution will consequentially take wealth from an even greater number of citizens, employees or customers.
The nature of these charges relates to previous federal subsidies that will be prohibited starting in 2011. As noted in the article they must be accounted when realized per GAAP. The subsidy covered a portion of the cost of their retirees’ prescription drug coverage and also allowed these costs to be deducted from the companies’ income tax. It encouraged companies to continue providing this coverage to retirees in order to keep them off of government-funded Medicare Part D. Due to the change in tax treatment of this subsidy, over a dozen corporations have announced charges ranging from $10 million by Goodrich Corp. to $1 billion by AT&T. Other companies reporting such charges include Boeing, Caterpillar, Deere, Prudential Financial, 3M, Honeywell, AK Steel Holding, Valero and Allegheny Technologies. The Obama Administration and Congress must not have received the memo informing them the U.S. economy isn’t exactly a winner.
The proponents of this reform argue for the closing of a tax loophole, among which group of beneficiaries these newly acquired taxes will be redistributed and what intention they aspire to achieve. It would be difficult to argue the merits of the reform and what interests they serve, as an equal argument can be made on behalf of the previous arrangement. What is certain though is that government subsidies to private industry always involve conflicts of interest, special interests and unintended consequences. Government intervention breeds further government intervention. For example, the growth of an employer-based health care system should be credited to the federal government and their encouraging it through changes to the tax code. Any criticism of this system’s failures should be credited to its creator and cheerleader, interventionist government. It is also important to realize who these interventions and subsidies affect: everyone.
Any immediate or future negative effects of these costs on the companies’ earnings and therefore stock valuation hit the investment portfolios of the thousands of shareholders invested in these companies. Why defend shareholders? Well, it shouldn’t be hard to understand that these shareholders are affected negatively and are now that much poorer. Whatever the future scenario, an economic opportunity has been reduced and/or redistributed. Should they have chosen to utilize this now-lost portion of their wealth to consume or pursue some form of entrepreneurial aspiration, those that suffer would be anyone who would have benefited from this now-impossible purchase, job creation, service or product. Had the shareholder opted to store this wealth in the bank, our gracious fractional-reserve banking system would have lent that amount of savings many times, financing the purchase of a home or the creation of a business venture by another party. It also isn’t difficult to understand that although a significant number of companies will be paying higher costs, there is certainly an industry that benefits from this reform: the pharmaceutical companies and their shareholders.
Due to the higher costs yet unchanged output, any sustainable profit-maximizing business will seek further efficiency and greater output per worker to recoup the costs. Burdened with these additional per year costs, cuts will be made to reduce labor costs. Indirect losses to private employees will be realized through the loss of one’s job, cuts to their employment benefits or retirement packages. This is a measure currently underway as briefly reported to the SEC by AT&T. Found here.
There may even be the loss of technological advancements that will never be realized due to a lesser amount of capital being allocated to the research & development areas of these businesses than would have otherwise been the case before the reform bill. The $1 billion charge by AT&T is a hefty chunk of change, to say the least.
These opportunities and benefits have now been transferred to the demographic and industry that stand to benefit from this reform. No surprise, government will surely claim any new opportunities, benefits or “job creation” as their own while ignoring what was lost in the process. To reiterate, so long as government intervenes in private industry through subsidies and special favors, special interest lobbying will remain a dominating influence within the beltway. Due to government intervention in private industry it is beneficial for corporations to waste billions of dollars lobbying government to protect or achieve profits or market share instead of earning it through the innovation of a product, service or any advancement that progresses our society. Government intervention and its consequential lobbying are truly an enemy of progress.
The government granting subsidies to one demographic or private industry at the expense of others is really the business of picking winners and losers, a business it should have no part in. The government needs to get it right, or get out. I advocate the latter.