Congress continues to consider comprehensive tax reform initiatives primarily for the purpose of enhancing the competitiveness of U.S. companies globally. While there is broad agreement on the goals of tax reform, debate continues on whether tax reform should: be “paid for” (raise revenue to pay for lower rates); preserve specified current deductions and credits; broaden the taxpayer base; be subject to dynamic scoring to determine revenue gain/loss; and include a BAT (border adjusted tax) component, among other matters.
Life insurers are subject to federal corporate income taxes, including rules specifying any deductions and/or credits for reserves maintained in connection with state law and dividends received on equities held in separate accounts, etc. Federal tax policy generally supports life insurance products as a way to incentivize individuals to provide for their own financial and retirement security. Taxes are often deferred on the cash value of life insurance and annuities in the hand of the policyholder, as well as deferred on retirement savings held in a 401(k) or other qualified employer plan or IRA. Life insurance proceeds paid upon the death of the insured are exempt from federal income tax.
The 2014 comprehensive tax reform draft developed by former House Ways and Means Committee Chairman Dave Camp (R-MI), as well as several proposals in the Bush and Obama Administrations’ Budgets since 2006, would significantly increase taxes on life insurers by either removing or significantly changing the tax deductions for reserve accounts, deferred acquisition expenses, etc. It would also substantially limit tax deferral of retirement savings.
Imposing new taxes on life insurance companies effectively imposes new taxes on life insurers’ products by increasing the cost of those products on to the consumer. Families and businesses alike need financial stability and currently count on life insurers’ products for peace of mind, long-term savings, retirement planning, and guaranteed lifetime income. Savings in permanent life insurance and annuities alone represent almost 20 percent of Americans’ long-term savings in this country.
Our nation’s public policies have historically recognized the importance of encouraging families and businesses to save more, plan responsibly, and protect their financial security. These policies should continue to encourage people and businesses to plan for the future and protect against financial risks—particularly in light of the strains on the public safety net. The long-term guarantees offered by the industry are more important now than ever with people living longer and families looking for more stability in planning for retirement. Over the next 15 years, approximately 10,000 people will turn 65 every day. It is clear that our nation needs the innovative protection and savings products that our industry provides.