March 26th, 2010
05:20 PM ET

AT&T takes $1 billion health care reform charge

AT&T said Friday it will take a non-cash charge of about $1 billion for the current quarter in anticipation of costs resulting from the health care reform measure signed into law this week by President Obama.

In a filing with the Securities and Exchange Commission, the telecommunications provider said the charge is related to a part of the law that eliminates tax deductions for Medicare prescription drug subsidies.When the Medicare prescription drug program was passed in 2003, it included a provision granting employers a subsidy of 28%, or up to $1,330, per retiree for prescription drug costs.

Even though the federal subsidies were already tax free, employers could still write them off on their income taxes, in addition to writing off their own contribution. The new law, signed by Obama on Tuesday, maintains the subsidy as a tax-free incentive to employers, but prohibits them from taking it as a deduction. 

White House spokesman Robert Gibbs defended this change on Thursday, explaining that the previous law essentially allowed for two deductions – one for the employer's own contribution, and another for the tax-free federal subsidy. 

"This bill, our bill simply closes the loophole and allows them to deduct that money one time by not counting it as income," Gibbs said. 

Under the tax change, which Gibbs said won't go into effect until 2013, employers will still be able to deduct their own contributions to prescription drug costs. 

AT&T's news comes on the heels of similar announcements by Deere & Co.and Caterpillar Inc. this week. Together, the industrial equipment companies expect to post $250 million in charges as a result of the smaller tax deductions. 

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soundoff (8 Responses)
  1. Eric

    US corporations pay 36 % income tax. The impact is estimated as follows:

    Say the company spends $1 in medicines under the program. Under the old law, They paid $0.72, they got $0.28. They wrote off $0.36. So for every $1 they spent, they had $0.28+0.36=$0.64 covered by the government, and $0.36 covered by their own cash. Since this was due to a mandated program passed by the Republicans under Bush, it's evident the government felt it was a fair deal for all.

    Under the new scheme, they will be taxed on the $.28 at 36 %, which means they'll have to pay an extra $.10 US dollars. They paid $0.36 before, now they pay $0.46. This represents a reduction in their net after income tax income of 10 % for every dollar spent providing this mandated coverage. Remember, this coverage was mandated by the government, not something they offered to provide on their own.

    March 26, 2010 at 6:47 pm | Report abuse |
  2. Eric

    Essentially companies like AT&T and Caterpillar have been receiving subsidies and now they aren't receiving as much.

    March 26, 2010 at 7:03 pm | Report abuse |
  3. Ryan

    Essentially companies like AT&T and Caterpillar are going to dump their retirees onto Medicare and leave the taxpayers footing the bill.

    March 26, 2010 at 7:53 pm | Report abuse |
  4. AntonioSosa, Florida

    As expected, the Obamacare scam will kill millions of jobs in the U.S.

    To make up for the additional costs, AT&T, AK Steel, Caterpillar, Deere, Valero Energy and every other company will be forced to let people go or take their operations overseas. As most U.S. companies were already hurting, many will have to close or move to FREER countries.

    As a result, millions of people are going to be left not only without insurance but without jobs. And the few lucky enough to have a job will become poor after paying for everyone else.

    That’s what happens in every commie country, as the country Obama and his comrades are trying to create in the U.S. with “help-the-poor” scams like Obamacare.

    Let’s do what we can to have this abomination repealed before it completely destroys our country and our future.

    March 26, 2010 at 8:48 pm | Report abuse |
  5. Ed

    I can't wait to hear AT&T before Congress explain how they were able to write off a government subsidy as an expense. Really? We given you taxpayer money as a gift and your claim it as an expense to reduce your taxes, really??

    Second, if it goes into effect in 2013 explain why you are taking charges to first quarter earnings?

    Third, how do you possibly come up with a $1B charge? 3M and the others are less than $100M. A billion dollars, really? Makes great headlines and a strong political point but if it turns out your SEC filings were bogus....

    March 27, 2010 at 12:22 pm | Report abuse |
  6. Charlie S

    This also underscores how twisted the Citizens United Supreme Court case was.

    1. This loophole alone (I'm sure there are many more) represents probably hundreds of billions of dollars in tax deductions that corporations receive, not for an expense they incurred, but for a tax free subsidy they received.

    2. Now the same corporations can spend an unlimited amount of money however and whenever they want to influence elections.

    3. If you blend the first two facts, you can see how corporations can use TAX PAYER MONEY to influence elections.

    4. Who would the corporations favor in an election, the party who created that welfare system for them, or the one taking it away?

    5. If anyone complains about the closing of the loophole, can they also say they are against runaway spending? I mean... what exactly is this? If an individual on welfare not only got a welfare check, but also got to deduct that check from their taxes as if it were an expense not a revenue... wouldn't heads explode? That's exactly what this is... but its AT&T getting the check and then writing it off.

    March 28, 2010 at 12:45 am | Report abuse |
  7. Meeko

    I am a current employee of AT&T in the Wireless section. It seems like AT&T has been cutting benefits left and right. From compensation to health benefits. In 2009, we all took about a $1,000 cut in our paychecks after compensation plans were revised. After all this $1 billion charge thing, I wonder how the company is going to make up for it? Most likely, its employees will be the ones taking the hit. I earn a middle class income and my health care is provided by my employer....all this wasn't suppose to affect me like I was told. I guess Im not too fond of Health Care Reform anymore.

    March 28, 2010 at 9:18 am | Report abuse |
  8. Jeff Bakke

    AT&T and other companies' claimed "cost increases" should be clarified so people really understand the issue. In 2003, under the drug plan legislation, these companies received a 28% subsidy for the cost of their payments to retiree drug plans. In addition, they were able to continue to deduct the full amount of the payment to the plan. Following is an example of what this meant: An expense of $100 is paid for retiree drugs as provided for in AT&T's contract with employees. The government then gave the company $28 towards payment of the expense; net cost to the company: $72. But AT&T was still able to deduct the full $100 from their income, even though they only paid $72. In other words, they were able to deduct a $28 charge from their income even though you and I, other taxpayers, paid that $28. This is just plain wrong and the 2010 healthcare legislation simply closed the loophole. Incidentally, they still get the $28 subsidy, which you and I are paying for. When these companies claim they'll have to cut healthcare benefits, lay people off, etc., then blame it on this healthcare legislation, they are being fundamentally dishonest. What they’re really doing is using this healthcare legislation as an excuse to make further cuts to wages and benefits in their ongoing race to the bottom.

    Jeff Bakke

    March 28, 2010 at 5:14 pm | Report abuse |