Is The Industry Facing Another Battle Over Taxing Life Insurance Products?
By
Washington
While Congress is wrapping up business this week in advance of its August recess, the life insurance industry is preparing for a possible post-Labor Day battle over taxation of some life insurance products.
Senate Finance Committee Chairman Max Baucus, D-Mont., said last week that he and the committees ranking Republican, Sen. Chuck Grassley, R-Iowa, plan to introduce legislation to eliminate what he called "abusive corporate tax shelters."
While no details were available at press time, products such as corporate-owned life insurance and split dollar have been on the table before and could be again.
The underlying problem, sources tell National Underwriter, is the weakened economy.
The Congressional Budget Office will shortly issue a report that is widely expected to say there is no longer any budget surplus to pay for tax relief.
This means that any tax relief Congress considers will have to be offset by revenue-raising provisions elsewhere.
While the House of Representatives is expected to vigorously oppose any revenue raisers, they are on the table in the Democrat-controlled Senate.
The insurance industry itself is backing several initiatives that could be termed tax relief. These include premium deductions for long-term care insurance and health insurance for the self-employed, and an extension of the current treatment of investment income earned overseas by subsidiaries of U.S. financial services firms.
While there is some speculation that the revenue-raising offsets will be generic in nature and not target specific industries, life insurance representatives are watching the situation closely.
As for inside buildup of whole life insurance, the House Ways and Means Committee considered placing a cap on the amount of tax-free inside buildup earlier this year as a means to pay for estate tax repeal.
Again, while details of the Baucus-Grassley bill have not been released, the wide speculation is that capping inside buildup will not be considered by the Senate.
Turning to the issue of optional federal chartering of insurance companies, the board of directors of the American Council of Life Insurers decided to continue its efforts to examine the practical and political feasibility of optional federal chartering for life insurers.
During a recent meeting, the board voiced support for the draft legislation developed by ACLIs staff.
