Email Donna if something gets out of hand   Rules for the Foo Forum   Back to GA Forum II  

Respond to this messageReturn to Index
Original Message
  • Waxman's War on Accounting
    • Anonymous
      Posted Mar 30, 2010 5:15 PM

      Henry Waxman's War on Accounting
      By Megan McArdle

      Accounting basics: when a company experiences what accountants call "a material adverse impact" on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact -- "to take the charge against earnings" -- as soon as it knows that the change is reasonably likely to occur.

      This makes good accounting sense. The asset on the balance sheet is now less valuable, so you should record a charge. Otherwise, you'd be misleading investors.

      The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America.

      Here's the story: one of the provisions in the new health care law forces companies to treat the current subsidies for retiree health benefits as taxable income. This strikes me as dumb policy; there's not much point in giving someone a subsidy, and then taxing it back, unless you just like doing extra paperwork. And since the total cost of the subsidy, and any implied tax subsidy, is still less than we pay for an average Medicare Part D beneficiary, we may simply be encouraging companies to dump their retiree benefits and put everyone into Part D, costing us taxpayers extra money.

      But this is neither here nor there, because Congress already did it. And now a bunch of companies with generous retiree drug benefits have announced that they are taking large charges to reflect the cost of the change in the tax law.

      Henry Waxman thinks that's mean, and he's summoning the heads of those companies to Washington to explain themselves. It's not clear what they're supposed to explain. What they did is required by GAAP. What AT&T, Caterpillar, et al did was appropriate. It's earnings season, and they offered guidance about , um, their earnings.

      Obviously, Waxman is incensed because this seems to put the lie to the promise that if you like your current plan, nothing will change. But this was never true. Medicare Advantage beneficiaries are basically going to see their generous benefits slashed, retiree drug benefits suddenly cost more and may now be discontinued, and ultimately, more than a few employers will almost certainly find it cheaper to shut down their plans. If Congress didn't want those things to happen, it should have passed a different law.

      If Congress thinks that it made the right tradeoffs -- or at least, justiiable choices -- then our Congressmen should step up and accept responsibility for what they've done. At the very least, I think we can ask that they refrain from trying to force companies to join them in denying reality by threatening congressional investigation of any company who dares to notify investors that this thing is going to cost them money.

      Source:http://www.theatlantic.com/megan-mcardle
    Login Status
  • You are not logged in
    • Login
      Password
       

      Optional
      Provides additional benefits such as notifications, signatures, and user authentication.


      Create Account
    Your Name
    Message Title
    Message Text
    Image Services Photobucket.com
    Options
    Enable formatted text (what's this?)