This week >I watched the DVD of a wonderful documentary film -- "Trumbo," the story of Dalton Trumbo, the most famous of the "Hollywood 10" screenwriters who were blacklisted in the 1950s after being accused of being a communist by the House Un-American Activities Committee. It's a terrifying and tragic story of lives ruined by a political witch-hunt.
My, how things have changed since then.
Oh, we still have political witch-hunts. But instead of hunting Hollywood people, it's now Hollywood people who do the hunting. America's top witch-hunter today is Congressman Henry Waxman (D., Calif.), whose district includes West Hollywood, Beverly Hills and Malibu. And instead of hunting communists, Waxman hunts capitalists.
That's what he's doing by commanding the appearance before his powerful House Energy and Commerce Committee next month by top executives of AT&T, Caterpillar, Verizon and Deere. Not only do these executives have to show up for hearings, but in advance of it, they have to provide internal documents including emails. It's basically a criminal investigation being conducted outside regulatory or law enforcement channels.
And what's the crime? None at all that I can see. Waxman is focusing on the noncash charges to earnings this quarter these companies are taking -- measured in the billions -- as a result of the changing tax treatment of health care benefits, as a direct consequence of the enactment this month of ObamaCare.
Huh? I can understand how eyebrows would be raised if these companies tried to report big gains. Then maybe you could wonder whether they were trying to prop up their reported earnings with trickery like Enron or Worldcom did. But these guys are taking losses, not gains. That's not what CEOs do when they are trying to cook the books!
And it's not something these companies or others (on Wednesday, Boeing announced a similar loss) would do casually. Under 2002's Sarbanes Oxley Act, which Waxman voted in favor of, it's a federal crime -- punishable by huge fines and long jail time -- for a chief executive officer or chief financial officer to file a false or misleading financial statement.
So what is Waxman objecting to, so much that he is holding public hearings and commanding the appearance of these busy executives at a time when they ought to be concentrating on getting the American economy out of recession? Simple. Waxman apparently is infuriated that these companies are revealing to the American public that Obamacare has costs associated with it. According to Waxman, their losses "appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."
Now just what "independent analyses" might he be talking about? If we look at the work two weeks ago of the bipartisan Joint Committee on Taxation of the U.S.
Congress to determine the costs of ObamaCare, we see an estimate of more than $4 billion in costs to corporations for the loss of a special tax subsidy for providing prescription drug benefits to employees and retirees. That s the exact reason cited by the companies for their losses.
So where's the inconsistency? Two weeks ago, this provision was trumpeted by the Democratic leadership as proof that health-care reform wouldn't add to deficits. This was a revenue-raising item that they were proud of. Now the companies that have to provide this revenue -- through the loss of a tax break -- have to show losses as a result. What did they expect?
The new higher taxes are the law of the land. So companies like the ones Waxman is targeting -- ones with large employee and retiree populations, and generous health-care plans -- simply have to calculate how much this will cost them over the expected life of the plans, and take the earnings hit.
But in his letter to the executives commanding their appearance, Waxman cites a Nov. 20, 2009, report from the Congressional Budget Office, which he claims shows that "companies would see a decrease of up to 3% in average premium costs." In fact, there is no such report. There is a report from Nov. 30, 2009 that does indeed show what Waxman claims. Actually, it says premiums will decrease from 0% to 3%. But so what?
Are these companies supposed to file financial statements with the Securities and Exchange Commission based on CBO guesses about what will happen to premiums? Who knows if they will go down. Maybe they'll go up. What we know for certain is that taxes are going up. That's the law. So the companies have to report their earnings based on that.
If they don't, the executives go to jail. That's what it says in the law that Waxman voted for.
What's gotten under Waxman's saddle isn't just the embarrassment of having great corporations report billions in losses just days after his health-care bill was enacted. Their actions make it clear that they may ultimately have to reduce the generosity of their health care plans, a generosity that had been possible under the lower tax rates but may be impossible under the higher ones.
There's the message for the naked emperor. If you raise the cost of companies providing health care, they will probably provide less of it. They're in the business of making profits, after all. You'd do the same thing in their position.
But that simple calculus of capitalism is a thought-crime, apparently, which must be punished. As sweeping a law as ObamaCare is, it doesn't provide for such punishment. So all that can be done is to shame and embarrass the executives of these un-American companies, by hauling them to Washington for McCarthy-era show trials.
Remember, in the 1950s it wasn't illegal to be a commie. So HUAC punished purported communists through the very act of investigating them for something that wasn't a crime to begin with.
That treated communism as a crime, and this made it one effectively. So now capitalism is a crime.
That's like putting a big sign on America's front lawn saying: Capital not wanted! Fine. Capital will act accordingly. It will go where it is wanted.
Where might that be? Oh, how about China? What a world, where a communist totalitarian state like China is more welcoming to capital than the free United States.
Don't expect stocks to go up much in such a world. At least, not American stocks.