Megan McCardle, in a futile effort to explain GAAP to Henry Waxman and Bart Stupak.
…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 [by Federal law] to record the negative impact…
…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 [occasioned by Obamacare].
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. And I’ve watched congressional hearings. There’s no chance that four CEO’s are going to explain the accounting code to the fine folks in Congress; explaining how to boil water would challenge the format.
It is not the format that’s going to be challenged, it’s the formatees. They know how to turn up the heat, they just don’t comprehend that they are the ones sitting in the soup pot.
I would jump to be the first to say that there should be no subsidies from any government to any corporation; it just encourages the lobbyists, produces graft and corruption, wastes money, stifles innovation and competition, and reduces our freedom. However, when you eliminate a subsidy, you have to expect it will change the financial picture for the corporations that enjoyed the former tax regime. Getting all huffy about that would be beneath most folks. Not necessarily because most folks would be worried about public perception of their honesty, but because they wouldn’t want everyone to know they were morons.
Ask yourself why the Feds felt it incumbent upon them to subsidize benefits for retirees belonging to large unions in the first place. Ask yourself if the corporations would have granted such generous benefits without such federal subsidy. That is, ask yourself if corporations would take advantage of government interference intended to encourage opulent benefit programs at your expense.