Life insurance industry trade groups said in a strong statement today that they will urge the Obama administration to withdraw proposals contained in the president’s budget that would impose new taxes on life insurers.
The statement was released by the American Council of Life Insurers, the Association for Advanced Life Underwriting, the National Association of Insurance and Financial Advisors, the National Association of Independent Life Brokerage Agencies and GAMA International.
See: Obama Calls for Tax on Life Insurers
Trade groups also voiced particular concern about provisions that would impose new taxes on contributions to retirement plans and Individual Retirement Accounts.
In a statement, the industry said that the proposed budget for 2013 “reasserts two provisions—one on corporate-owned life insurance (COLI) and one on life insurers’ dividends-received deduction (DRD)—that were initially proposed in the 2010 budget but rejected by Congress.”
The groups added that the COLI proposal would impose new taxes on life insurance used by businesses small and large.
“Many businesses use COLI to protect against financial or job loss stemming from the death of owners or key employees,” the statement said.
It added that COLI is also used to ensure business continuation. “In addition, COLI is a widely-used funding mechanism for employee and retiree benefits,” the statement said, adding that “Congress affirmed the benefits and tax treatment of COLI and assured its responsible use in bi-partisan legislation enacted in 2006.”
The statement added that, “Wisely, Congress has rejected similar proposals in past years. We urge the administration to withdraw its proposals on COLI and DRD.”
At the same time, the Insured Retirement Institute issued its own statement regarding the DRD proposal.
IRI president and CEO Cathy Weatherford said the trade group’s research has shown that “the tax-deferred status of annuities has been pivotal in helping middle-income Americans utilize lifetime income strategies as part of their retirement savings plan.”
She said that removing this incentive would not necessarily increase tax revenue, but certainly would add a new barrier that would prevent Americans from attaining lifetime income coverage.
“With today’s unprecedented retirement challenges, now more than ever, we need to protect the incentives available to help Americans attain a financially secure retirement,” Weatherford added.
The new limitations on deductions for retirement contributions would extend to any tax-exempt state and local bond interest, employer-sponsored health insurance paid for by employers or with before-tax employee dollars, health insurance costs of self-employed individuals, employee contributions to defined contribution retirement plans and individual retirement arrangements.
It also calls for the deduction for income attributable to domestic production activities, certain trade and business deductions of employees, moving expenses, contributions to health savings accounts and Archer MSAs, interest on education loans, and certain higher education expenses.
However, Martin Sullivan, a contributory editor for Tax Analysts, an independent organization, cautioned that the proposals are unlikely to see the light of day.
He said he found the budget proposal makes little movement toward reform and more ‘politics as usual’ in tax provisions.
President Obama’s proposed budget for 2013 would impose sweeping tax hikes on the insurance industry, including a restoration of 2009 estate tax rules, and sustaining the portability between the estate and gift taxes as contained in current law, but at a maximum lower level. Obama’s proposed budget would also call for an increase in the SEC’s budget level in 2013 to $1.566 billion, which is a 18.5% increase over the SEC’s 2012 appropriation.
The one nugget is another proposal from the past, this one aimed at providing an incentive for small employers to establish retirement plans for their employers.
Under current law, small employers (those that have no more than 100 employees) that adopt a new qualified retirement plan (or SIMPLE plan) are entitled to a temporary business tax credit equal to 50% of the employer’s expenses of establishing or administering the plan, including expenses of retirement-related employee education with respect to the plan. The credit is limited to a maximum of $500 per year for three years.
The administration said in conjunction with the automatic IRA proposal, to encourage small employers not currently sponsoring a qualified retirement or SIMPLE plan to do so, it wants to double this tax credit to a maximum of $1,000 per year for three years (effective for taxable years beginning after December 31, 2013) and to extend it to four years (rather than three).
Other provisions of the proposed budget include:
•Estate tax would be turned back to the level that existed in 2009 of a $3.5 million exemption and a maximum tax of 45%. Currently, the exemption is $5 million and the maximum tax rate 35%.
•Similarly, generation-skipping transfers (or GSTs) made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45% with a life-time exclusion of $3.5 million. Gifts made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45 percent with a life-time exclusion of $1 million.
•As reflected in the adjusted baseline, the portability of unused estate and gift exclusion amounts between spouses would be made permanent and would apply to anyone dying after December 31, 2012.
•Establishing a minimum term of 10 years for grantor retained annuity trusts.
•A special tax on financial institutions with assets of more than $50 billion. It is designed to raise approximately $60 billion over 10 years. The tax was proposed earlier in order to pay for losses associated with the Troubled Asset Relief Program, but opponents point out that the program is nearing solvency, and that for that reason is unlikely to be supported by Congress.
Despite such sweeping ambitions, however, analysts point out that the budget, as proposed, has virtually no chance of being enacted in law.
