A group of insurance associations is concerned about the implications that new taxes included in President Obama‘s 2013 budget proposal, introduced Feb. 13, will have on the life insurance industry.
Barack Obama
The $3.8 trillion budget proposal, which would take effect Oct. 1, projects a $1.33 trillion deficit for this year, the fourth consecutive year of a deficit exceeding $1 trillion. The proposal projects that the deficit would fall to $901 billion by next year and $575 billion in 2018.
“As an industry that helps 75 million American families and thousands of businesses responsibly plan for their financial futures, the life insurance industry is deeply concerned about provisions in the Administration’s proposed 2013 budget that amount to new taxes on products that provide security and peace of mind,” according to the joint statement.
Attacking COLI and DRD
The federal budget proposal revitalizes two provisions initially proposed in the 2010 budget that were rejected by Congress: one concerning corporate-owned life insurance (COLI) and one about life insurers dividends-received deduction (DRD).
Life insurance has been seen by some investors as a safe harbor, far less threatening to assets than the up and downs of stock markets.
“Wisely, Congress has rejected similar proposals in past years. We urge the administration to withdraw its proposals on COLI and DRD,” according to a joint statement by the National Association of Insurance and Financial Advisors (NAIFA), the Association for Advanced Life Underwriting (AALU), the American Council of Life Insurers (ACLI), GAMA International, and the National Association of Independent Life Brokerage Agencies (NAILBA).
The COLI proposal would impose new taxes on life insurance used by small and large businesses. Many businesses use COLI to protect against financial or job loss stemming from the death of owners or key employees; it also is used to ensure business continuation. COLI is often a funding mechanism for employee and retiree benefits, the group of associations reported.
The proposal would repeal the exception from the pro rata interest expense disallowance rule for contracts covering employees, officers or directors, other than 20% owners of a business that is the owner or beneficiary of the contracts.
Financial security products threatened
The budget proposal also would reduce the DRD that life insurers use in accounts that fund variable life insurance and variable annuity contracts, which are key products for financial and retirement security, according to the associations.
The proposal would allow the current reduced tax rate (15%) on qualified dividends to expire as scheduled for income that would be taxable in the 36% or 39.6% brackets. It would affect dividends received after Dec. 31.
The group also is concerned about new taxes proposed for contributions to retirement plans and Individual Retirement Accounts (IRAs). About 20% of American’s long-term savings is in life insurance and annuities, the group reported.
“At a time of low individual savings, it makes no sense to propose taxing products that help people build their nest eggs,” the joint statement read. “The Administration’s budget proposal would discourage people from turning to products they want and need. Indeed, it does not make sense when you consider the importance of industry products in people’s lives.”
Obama’s 2013 budget will discourage people from buying life insurance via IFAwebnews.com .
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