The tax policy specialists who work with the life insurance and annuity community are still studying the 253-page description of the Senate's version of the Tax Cuts and Jobs Act bill.
One point is already clear: The Senate bill drafters hope life and annuity players will contribute about $25 billion extra over 10 years, or an average of $2.5 billion extra per year, with most of the cash coming out what life and annuity issuers pay to bring in customers.
U.S. life and annuity issuers collect about $500 billion in payments per year, according to data from the National Association of Insurance Commissioners.
Tax bill drafters at the Senate Finance Committee produced a life insurance provisions section that's different from the version in the current House tax bill — H.R. 1. Members of the House Ways and Means Committee approved the House version of H.R. 1 along a 24-16, party-line vote Thursday.
Like the drafters of the House tax bill, Senate Finance drafters have borrowed heavily from a 2014 tax-change proposal developed by Rep. Dave Camp, R-Mich., a former House Ways and Means chairman.
The American Council of Life Insurers (ACLI) and property-casualty insurer groups hated the Camp insurance tax proposals. They fought hard against the proposals and succeeded at keeping them from becoming law.
Although the types of life insurance-related provisions in the Senate, House and Camp proposals are similar, the details are different.
Budget analysts at the Joint Committee on Taxation (JCT) have done separate analyses of the new Senate bill and of an early draft of the House H.R. 1 tax bill.
Those analyses suggest that the Senate drafters would try to squeeze less cash out of life and annuity issuers' reserves but more out "policy acquisition" spending, or spending on underwriting, marketing, premium taxes… and agent and broker compensation.
In other words: as the boomers age toward retirement, and their oldest old years, both the House and the Senate tax bill would cut life and annuity issuers' revenue available for supporting and attracting customers by an amount equal to about 0.5% of issuers' revenue each year.
If the Senate bill became law and worked as drafters and JCT analysts expect, it might leave insurers with more resources to meet the obligations promised through the policies and annuity arrangements already in force, but, possibly, less cash for getting people protected against the risks of death, disability and a longer-than-expected lifespan.
Other provisions could cut the overall corporate tax rate. Some observers have suggested that the life insurance provisions would simply cut the size of the tax cut life insurers get, not increase their tax burden. Tax bill supporters have also argued that, if consumers and companies end up with more after-tax income as a result of tax reform efforts, they could end up spending more money on better, more rational insurance and retirement savings arrangements.
Members of the Senate Finance Committee may talk about those ideas at 3 p.m. EST Monday, when they meet to "mark up," or consider and amend, their version of the tax bill.
The committee has posted a meeting notice, which explains how to watch the live, web-based video stream of the hearing, here.
A copy of a detailed official description of the Senate Finance bill is available here.
A copy of the JCT analysis of the bill is available here. (The JCT analysts give a no-frills list of the insurance-related provisions in Section II-J of their table.)
For more details about the life and annuity sections of the bill, listed in order from cheapest to most expensive, read on.
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6. Repeal of the special rule for distributions to shareholders from pre-1984 policyholders' surplus account.
Effect: A gain for the government of less than $50 million over 10 years.
This change could affect some small, struggling life insurers that were grandfathered in under a tax rule change imposed in 1984.
The federal government gave life insurers a chance to make tax-free distributions from policyholder surplus accounts, to eliminate the impact of the change, in 1985 and 1986, but the shift could affect some life insurers that had too little cash to take advantage of the 1985-1986 relief, according to analysts at Eversheds Sutherland (US) LLP.
The Camp proposal and the House bill would also make this change.
5. Repeal of small life insurance company deduction.
