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.
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.
NAIFA, he notes, supports reform of the estate tax through increasing the exemption, reducing the rates and adjusting for inflation.
This would provide immediate and certain relief for 99% of Americans, Winston says.
On insurance regulation, Dolan says he expects that optional federal chartering legislation will be introduced early in the next Congress, and hearings will be scheduled in the House Financial Services Committee.
However, he says, the change in the Senate might affect the issue. Sen. Chris Dodd, D-Conn., was expected to push OFC legislation early in the year. But with Republican control of the Senate, Banking Committee Chairman Richard Shelby, R-Ala., will make the call, and he is regarded as more insistent on preserving state prerogatives.
“ACLI may have a steeper climb to get OFC legislation under active consideration,” Dolan says.
Winston says OFC will likely be a multi-year project in any case, although it will be interesting to see what happens if a life insurance-only system is proposed.
Nonetheless, he says, Shelby has made it clear that privacy will be his primary concern as Banking Committee Chairman.
“I dont think OFC has even been discussed on the Senate side,” Winston says.
Shelby, according to Winston, has said the privacy provisions in the Gramm-Leach-Bliley Act are too weak and that he supports an opt-in standard for all information sharing, whether with affiliated or unaffiliated parties.
NAIFA, Winston says, also believes GLB should be strengthened, but takes the middle approach of opt-out except for medical information, which should be opt-in.
Dolan adds that Shelby is one of the founding members of the Congressional Privacy Caucus, and he voted against GLB because he thought the privacy standards were too weak.
Coupling this with the fact that the Fair Credit Reporting Act will be reconsidered in 2003 guarantees that privacy will be a hotly contested issue in the Senate Banking Committee, Dolan says.
Turning to retirement security, Winston says he expects to see a major focus on it in 2003.
NAIFA, he says, supports the administrations efforts to make the Portman-Cardin pension reform provisions, including increased contributions to 401(k) plans, permanent.
In addition, he says, NAIFA strongly supports legislation that would allow insurance agents and others that provide services to pension plans to also offer investment advice to plan participants.
Dolan notes that the legislation backed by ACLI and NAIFA passed the House last year by a 255-163 vote.
Also on pensions, Dolan says ACLI will continue to build support for its Lifetime Annuity Payout proposal, under which retirees who choose to receive their retirement funds in the form of an annuity will be taxed at the capital gains rate instead of the individual rate.
ACLI, Dolan says, will focus on obtaining Bush administration support for the proposal, as well as assistance in promoting it.
The life insurance industry will also continue efforts to promote long-term care insurance by providing for an above-the-line deduction and inclusion of LTC in cafeteria plans and flexible spending accounts, Dolan says.
An above-the-line deduction means it is available to all taxpayers, whether or not they itemize.
Finally, on legal reform, Dolan says legislation allowing defendants to have major class-action lawsuits heard in federal courts will likely receive early attention in both the House and Senate.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.