NAIFA President: ‘Disappointed’ Budget Proposes Tax Hikes on Life Industry
February 2, 2015 by Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com
WASHINGTON – The National Association of Insurance and Financial Advisers is criticizing a White House Proposal to increase taxes on the life insurance industry.
President Obama’s proposed budget for the 2016 fiscal year includes a number of provisions that would alter rules on life insurers, which the White House said would save taxpayers $31.1 billion over the next 10 years.
The proposals include:
— Requiring that derivative contracts be marked to market with resulting gain or loss “treated as ordinary.” The White House said the change would save $18.8 billion by 2024.
— Modifying proration rules for life insurance company general and separate accounts, saving $6.3 billion.
— Expanding pro rata interest expense disallowance for corporate-owned life insurance, saving $5.5 billion.
— Modifying rules that apply to sales of life insurance contracts, saving $495 million.
The White House budget proposal also includes a measure that would require information reporting for private separate accounts of life insurance companies, saving $8 billion over 10 years.
NAIFA President Juli McNeely said in an email most of the tax proposals in this year’s budget appear to be “repeats” from past budgets.
“NAIFA is disappointed, but not surprised, that the administration targets tax increases on the life insurance industry,” McNeely said. “Americans need public policy that continues to encourage them to plan ahead, protect their families’ financial security and adequately save for retirement.”
McNeely said in order to be prepared for retirement, American households should have sufficient retirement savings accounts, life insurance, medical insurance, and guaranteed income annuities to supplement Social Security benefits.
But by raising taxes on life insurers, which would be passed on to consumers, McNeely said the White House proposal could make it more difficult for families to obtain the level of retirement security they need.
“With the strain on federal entitlement programs as well as on state and local programs, now is not the time to make it more difficult or more expensive for families to plan for their long-term financial needs,” McNeely said.
She said NAIFA has planned a congressional conference for its members to meet with lawmakers for May 19 and May 20. During the conference, McNeely said NAIFA members will continue efforts to explain the importance of life insurance products to the financial and retirement security of 75 million American families.
The White House budget proposal is part of Obama’s effort to implement the “middle-class economics” he laid out in last month’s State of the Union Address (Best’s News Service, Feb. 2, 2015).
The proposal would cut taxes for middle-class Americans and increase infrastructure spending by $478 billion over the next six years. To pay for those proposals, the White House budget would place a one-time 14% tax on U.S. companies overseas profits.
Under current law, companies’ overseas profits are only subject to federal taxes when they are returned to the United States. The top corporate tax rate is 35%.
However, many companies avoid paying U.S. taxes by simply leaving overseas profits outside of the country.
The White House budget proposal would also raise taxes on some wealthy Americans.
The White House proposal is unlikely to make it through the Republican-controlled Congress. Rather, it is likely the opening salvo of what is expected to be a contentious budget battle in 2015.
