I was -- and I don't use this word lightly -- flabbergasted to find out yesterday that big corporations that provided a prescription drug benefit in their retirement plans were deducting from their taxes incentive payments from the government to provide the coverage. You read that right: the government pays corporations to provide a benefit and the corporation deducts that payment from their income taxes.

I think NPR reporter Jim Zarroli analogized it best when he said, "It was like the government giving you money to pay your mortgage and also letting you write off the mortgage interest."

And we're hearing about this obscene tax provision because the health care bill just signed into law does away with the abomination ($).

Under the new law, companies will continue to receive a 28 percent taxpayer subsidy for providing prescription drug coverage to retirees eligible for Medicare, and they will continue to be able to deduct all their own expenditures on the benefits. But they will no longer be able to deduct the federal subsidy money in addition.

The federal subsidies and the tax break were established under the 2003 law (PL 108-173) creating Medicare’s Part D prescription drug benefit. They were designed to discourage employers from dropping their retiree drug coverage and pushing their former employees onto the Medicare plan.

I was certainly glad to hear the health care bill is bringing some semblance of sanity to the tax code, but I was a little more than incensed that some big corporations not only have the unmitigated gall to complain that their free lunch is being taken away but the insolence to then make threats about employment and benefits.

James A. Klein, the president of the American Benefits Council ["major corporations sponsoring comprehensive and diverse benefit plans"], called the provision “a serious mistake that is having negative and unintended consequences.”

[...]

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.

[...]

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.

American corporations: Don't touch that pile of junk called the "tax code" that we complain about all the time.

Image by Flickr user Valerie Morrison used under a Creative Commons license.