President Obama laid out his deficit reduction package on Monday, calling for $1.5 trillion in new taxes as part of a plan to save $3.2 trillion over the next decade. The "increase taxes on the wealthy" angle garnered the bulk of the headlines. Proposals to end the Bush-era tax cuts for high-income households would raise a projected $800 billion. Limiting deductions for those earning more than $250,000 per year and eliminating other tax breaks for oil and gas companies are estimated to raise another $700 billion.
Trimming $248 billion from Medicare and another $72 billion from Medicaid — which, it was said, would mainly come from "reducing wasteful spending and overpayments" — was also part of the package.
While the general public didn't notice, there were other components of the plan that definitely caught the attention of the life insurance industry.
The plan could impose a $6 billion hit on corporate-owned life insurance arrangements and raise $866 billion by turning the federal estate tax clock back to 2009. Another component is supposed to raise $1 billion over 10 years by making buyers of life insurance policies pay income taxes on the death benefits. Another $5 billion would come from modifying the dividends-received deduction for life insurance companies' separate accounts.
While the perpetual gridlock between Democrats and Republicans will almost certainly keep most components of Obama's package from ever becoming law in any identifiable form, you can count on the industry's lobbying efforts to continue to fight the good fight when it comes to keeping negative insurance-related provisions off the books.
Jack Dolan, an American Council of Life Insurers representative, told our sister publication National Underwriter, "This unwise idea to tax Americans' financial and retirement security has been proposed before. It hasn't gone anywhere, and for good reason: it represents unsound public policy. We're confident Congress will not adopt it this time, either."
