After a hectic year that saw numerous attacks on the taxation of life insurance products, the industry hopes that the first session of the new 108th Congress will ease some of the pressure.
Republican control of the U.S. Senate is a favorable development, says David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va.
He notes that in the previous Congress, Sen. Jeff Bingaman, D-N.M., strongly supported legislation that would curtail corporate-owned life insurance by taxing the death benefit on an employee who died more than a year after leaving employment.
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Bingaman, Winston says, is still committed to offering his legislation and also wants the Senate Finance Committee to hold a hearing on the issue.
However, Winston says, there is less likelihood of a hearing with Republicans in charge.
Jack Dolan, a spokesman for the American Council of Life Insurers, agrees.
“ACLI believes that the threat of taxation on insurance product-specfic provisions has declined somewhat given the new Republican control of the Senate,” he says.
However, both Winston and Dolan say the life insurance industry must remain alert to efforts to raise revenue by taxing insurance products.
Winston notes that while the nation remains in a budget deficit, President Bush has said he is not as concerned about deficit spending at a time when the nation may be at war.
However, Winston says, that should not give anyone a sense of complacency. “NAIFA is prepared to oppose any efforts to curtail business uses of life insurance.”
Dolan adds that both the Bush administration and the Republican Congress have placed a high priority on permanently repealing the estate tax.
More broadly, the Treasury Department is developing a tax reform package that could affect the life insurance industry, but Winston says that discussion of what will be in it is all speculative at this point.
There have been some suggestions, he says, that Treasury may be considering a flat tax or a consumption tax as opposed to the current system.
However, Winston says, he believes the administration will want a package that provides the economy with an immediate stimulus. Ideas such as a flat tax will not have the immediate stimulative effect the administration wants, he adds.
If the administration does seek tax simplification, Dolan says, ACLI will seek to repeal Sections 809 and 815 of the tax code, and the current restrictions on consolidated returns.
Turning to repeal of the estate tax, Winston notes that an effort will be made to permanently extend it, along with the other expiring provisions of the 2001 tax legislation.
But again, he says, this would not have an immediate, stimulative impact on the economy, so it remains to be seen how high a priority permanent repeal will be.
Currently, Winston says, NAIFA does not believe the supporters of permanent repeal have the 60 votes they will need to prevail in the Senate.
However, he says, there is another way that repeal could be extended for two years. It is possible, Winston says, that an extension could be made part of the budget reconciliation, which would require only 51 votes.
Under current law, the estate tax is scheduled to phase out on Jan. 1, 2010, but come back into being on Jan. 1, 2011. Using the budget reconciliation process, the return of the estate tax could be put off until Jan. 1, 2013, Winston says.