According to the Wall Street Journal, President Obama is hoping to generate over $12 billion in federal revenue from new taxes on life insurers. “The provisions in the Treasury Department tax plan released last week would restrict several products that have drawn attention from regulators in recent years because of the way they use life-insurance policies as vehicles for minimizing taxes on investments.”
The proposals would restrict several tax breaks received by purchasers of insurance or insurance companies themselves, and also require more information reporting in some cases. Industry representatives say the changes would hit sales in at least one significant area of the business, corporate-owned life insurance.
Several industry trade groups, including the American Council of Life Insurers and the Association for Advanced Life Underwriting, wrote last week to leading lawmakers, expressing opposition to the proposals. "Especially during a financial and economic downturn, increasing taxes on products and on an industry that encourages American consumers and businesses to plan for the future and effectively manage risk is unwise public policy," they said.
Insurance industry representatives also argue that now is a bad time to seek more taxes from the industry, given companies' recent losses on investments. The Treasury has given several big life insurers, such as Hartford Financial Services Group Inc. and Lincoln National Corp., preliminary approval to receive billions in federal aid.
A Treasury official said the tax proposals are unrelated to the federal capital infusions, adding that the insurers applied for that money months ago. The proposed tax changes generally would take effect in 2010 or 2011.
The official said the proposals are aimed at restoring fairness to the tax code. "Our proposals are designed to make sure when it comes to paying taxes, everyone pays their fair share," she said. She noted that some of the proposals are aimed at purchasers of insurance, not the companies themselves.
