19 May 2015 Insurance

Obama’s reinsurance tax proposals condemned

US President Obama’s reinsurance tax proposals could damage the US economy, according to a study by Arthur Laffer, a former member of Reagan’s economic policy advisory board.

According to the report, which was published by the Laffer Centre, attempts to deny a tax reduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers would result in economic damage to consumers and businesses by raising the cost of their insurance.

The report said that the reduced supply and higher cost of insurance would result in less insurance being sold and bought. The reduction in coverage would affect the economy more generally, said the report, amounting to a reduction in GDP, jobs, wages and income.

“And by denying the deduction only to foreign companies, the proposal also involves trade protectionism implemented through the tax system, done at the behest of domestic insurers and reinsurers seeking protection from foreign competition,” said the report.

“Protectionism smuggled into the tax code would violate the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), and international tax treaties to which the US is a signatory.”

The study urged Congress to develop a plan for corporate tax reform that provides "an equal basis for all industries, following sound, uniform principles for defining the corporate tax base, and making the tax code more neutral and internationally competitive, particularly with lower marginal tax rates."

On behalf of the Coalition for Competitive Insurance Rates (CCIR), former congressman and current president and chief executive officer of Associated Industries of Florida, Tom Feeney, said: "Efforts to reform the tax code by imposing additional taxes on international affiliate insurers and reinsurers would force the industry as a whole to reduce the size and scope of their US offerings, making coverage during the next hard market less available or unaffordable for the companies and consumers that depend on it the most.

“And, when higher insurance rates are passed down to policyholders, economic growth is stalled, a glaring fact routinely overlooked by policymakers in Congress.

"The unintended consequences of a tax on foreign affiliate insurers and reinsurers far outweigh the benefits. The only potential winners are the select few firms that stand to profit from decreased market competition.

“A robust insurance market, open to as many competitors as possible, is essential to protecting consumers and allowing businesses to operate and grow. We hope Congress listens to the clear message of this report and works to create a tax reform proposal that is without bias and uniform in its treatment of national and international industry."

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