FY 2017 Budget Provision to Tax Foreign Insurers Opposed by Bipartisan Coalition

President’s budget would reduce competition and consumer access to affordable insurance

Washington, DC (February 9, 2016) — The Coalition for Competitive Insurance Rates (CCIR), the leading voice for continued and increased competition within the insurance industry, today condemned an inequitable provision in President Obama’s FY 2017 budget that would deny a routine business tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers. This is the seventh attempt by the president to introduce this specific budget recommendation, despite fervent opposition to the proposal in previous sessions.

“These reinsurance tax schemes are writ large attempts at special interest protectionism,” said top economist Arthur Laffer, who in 2015 published a study, “Do We Want Special Interest Trade Protectionism in the Tax Code?,” that warns that what amounts to a reinsurance tariff would result in a capital reduction of nearly $10 billion, as well as a further drop in GDP due to foreign trade retaliation. “Denying this standard business expense deduction will push firms out of the marketplace, reducing coverage and increasing costs for consumers.”

President Obama’s budget measure, which closely resembles legislation (H.R. 2054 and S. 991) proposed in the 113th Congress by Reps. Richard Neal (D-MA) and Bill Pascrell (D-NJ) and Sen. Robert Menendez (D-NJ), would result in a tax increase  on reinsurance companies responsible for maintaining affordable business and consumer access to insurance by spreading risks globally. This proposal has remained under active consideration in Congress, having been included in former Ways and Means Committee Chairman Dave Camp’s (R-MI) tax reform legislation (H.R. 1) in 2014; but it was not proposed by the Senate Finance Committee’s International Tax Reform Working Group in 2015.

In a letter sent today from CCIR to the chairmen and ranking members of the US Senate Finance and House Ways and Means Committees, 31 concerned insurers, business, industry and consumer groups expressed anxiety over the unintended probable consequences of such proposals.

“A tax on foreign affiliate reinsurance will stifle the reinsurance industry and drastically reduce competition in the marketplace,” said Tom Feeney, president and CEO of Associated Industries of Florida, a signatory of the CCIR letter. “Limiting U.S. domestic insurance capacity will drive up costs, placing a huge burden on homeowners and businesses. This tax would benefit few at the expense of many, including home owners, insurance companies and small business owners.”

A growing chorus of state and federal officials from across the political spectrum has vocally opposed the reinsurance tax proposals. Current and former state insurance commissioners representing Florida, Georgia, Louisiana, Mississippi, Nevada, North Carolina, Pennsylvania and South Carolina have publicly criticized the measures, as have agriculture commissioners from Florida, North Carolina and Tennessee, and Florida Governor Rick Scott.

A 2015 report issued by the Tax Foundation on the consequences of a tax on the foreign reinsurance industry found that United States’ GDP would experience $1.35 billion in losses over the long term, which is approximately twice the revenue it would collect. In an economic impact study of previously introduced related legislation by Rep. Neal and Sen. Menendez, the Brattle Group, a leading economic consulting firm, found such legislation would have reduced the net supply of reinsurance in the US by 20 percent, forcing American consumers to have paid a total of $11 to $13 billion a year more for their same coverage.

As the Laffer study concludes, “Good tax reform promotes a tax code with the lowest possible tax rate on the broadest possible tax base. Instead, the Obama/Menendez/Neal proposal to eliminate the deduction for foreign reinsurance premiums follows the exact opposite path, applying a high tax rate to a very narrow tax base – a targeted and specific industry. The known result—surely accompanied by a number of unanticipated consequences as well—will be that domestic insurers use less foreign affiliate reinsurance, which will result in less tax revenue than expected and more expensive, less effective insurance.”

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The Coalition for Competitive Insurance Rates is made up of business organizations, consumer advocacy groups, insurers and their associations. For more information on CCIR, please visit www.keepinsurancecompetitive.com.

Media Contact:
Sarah Morrison
Podesta Group
202-448-3409
SMorrison@podestagroup.com

Category: Press Releases