- Buy, Sell or Hold: Deere and Co. Thrives on Strong Global Trends and Flawless Execution
- Healthcare Reform Losers: Companies Providing Retiree Benefits Face Multi-Million Dollar Tax Costs
- Freakish Winter Freezes Some Profit Plays, Heats Up Some Others
Deere & Co.
Part of the new healthcare law places a federal income tax on government subsidies given to companies that provide retirees and their spouses with drug benefit plans. The 28% subsidy was created as Medicare Part D, adding a prescription plan for senior citizens to the Medicare Act of 2003. To encourage companies to continue offering retirees a drug plan, the tax-free subsidy reduced companies' costs. Fewer senior citizens then went through Medicare's prescription program - which would have cost taxpayers much more than the subsidy price.
Caterpillar Inc (NYSE: CAT) and Deere & Company (NSYE: DE) are just two of the businesses that fought the new stipulations. The manufacturers estimate the tax will cost them $100 million and $150 million this year, respectively. Other companies who will pay handsomely include AK Steel Corp. (NYSE: AKS) with $31 million in charges, and Honeywell International Inc. (NYSE: HON) with an estimated fee of $42 million.
Consulting firm Towers Watson & Co. (NYSE: TW) estimates these taxes could cost companies about $233 per person receiving drug benefits - a hefty price tag when a company gives benefits to 40,000 retirees, like Caterpillar.
Overall, more than 3,500 companies offer drug benefits to 6.3 million retirees. Although the tax won't be effective until 2011, accounting practices force companies to recognize the fees in the period in which the law is signed. That means the tax could nab $14 billion from corporate profits in a year when companies were hoping to recover from huge losses during the recession.
But as everyone from Southern California to the Middle Atlantic East Coast states, and the Great Lakes to the Deep South, is painfully aware, this year's winter has been neither "routine" nor "typical" - not by a long shot.
Indeed, the so-called "snowpocalypse" of 2010 has been so fierce that pundits have already coined new terms to describe it. This run of winter bluster has actually nullified some of the usual "winter plays" - those that can be found almost every year - while at the same time creating other opportunities you might not ordinarily think of.