The NYT Business page reports that AT&T, Caterpillar, Deere & Company and many other large corporations are complaining that the new health reform law will strip them of a large tax subsidy. They want the provision repealed so they can keep their lucrative subsidy.

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.

So what’s going on here? The Time’s Steven Greenhouse does a good job explaining how the tax subsidy came about:

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.

But the story might also have asked how this tax subsidy works. If AT&T’s employee health plans pay out $10,000,000 to cover drug costs, AT&T gets to deduct that from taxable income. No problem there. But using the subsidy, AT&T also gets to deduct an extra 28 percent, reducing it’s taxes still further.

Now think about the incentives. If you’re AT&T and you had a choice between a drug plan with mostly brand name drugs that would cost you $10 million, and a drug plan with more generics that cost you only $5 million, you’d choose the more expensive $10 million plan, because you get to add 28 percent (paid by taxpayers) to the higher total and then reduce your taxes correspondingly.

In other words, the Bush/Congressional "fix" for Medicare Part D was a scheme to give large corporations a massive tax subsidy that went straight to their profits, along with a strong incentive to purchase the most expensive drugs and thus drive up drug prices. The higher the firms’ drug bills, the larger their profits. How big a tax scam was this?

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.

And you can bet the name-brand drugsters loved this too; consumers, not so much. Since this likely kept drug prices higher, then even AT&T’s employees could be hurt to the extent of any co-pays. Employees of firms that didn’t get the tax subsidies would likely pay more because the scheme would tend to sustain or drive up drug prices for more expensive drugs.

The provision AT&T and its big business friends want to preserve is basically a corporate welfare scam, a license to large corporations to print money and increase profits by buying too many, too expensive drugs.

This one promises to become a litmus test to identify Congressional lovers of corporate welfare queens. Any Congressperson or Senator who bites on this one should be shamed and banned from ever complaining again about rising health care costs or government deficits.

Update: First, a commenter points out an accounting error, which renders the point about incentives wrong. Second, at Think Progress’ Wonk Room, Igor Volsky describes the original subsidy as "about $1,300 per retiree per year," which is different from the NYT description of a percentage (28%), but still leave the double dip feature.

Udate II: It appears the 28% is correct. From one business source:

Under the Medicare Prescription Drug, Improvement & Modernization Act of 2003, employers that provide prescription drug coverage for retirees are eligible to receive a tax-free contribution from the government equal to 28 percent of the employers annual drug costs between $250 and $5,000 per beneficiary. To qualify for the subsidy, employers must prove that their prescription drug benefit is at least actuarially equivalent to the benefit that retirees receive from Medicare Part D (the component of Medicare through which prescription drug benefits will be offered).