Snow Says Dividend “Accommodation” Will Be Found
Treasury Secretary John Snow says he believes the Bush administration will “find an accommodation” with the insurance industry on the issue of tax-free dividends.
The Secretary made the comment during a question-and-answer session at Congressional hearing on President Bushs tax reform and economic stimulus proposals.
One of the proposals would eliminate taxation of corporate dividends. However, as currently envisioned, it would not apply to annuities.
This is because elimination of the tax would apply only to dividends on stocks held individually or through mutual funds.
Frank Keating, president of the American Council of Life Insurers, Washington, says that this would adversely affect the life insurance industry.
Thus, he says, dividends credited to stock investments underlying an after-tax variable annuity contract should be given the same treatment.
Keating spoke during a House Ways and Means Committee hearing.
Keating says that the life insurance industry is an essential part of the economy, one that invests long term and offers products for long-term financial security.
“The life insurance industry is good for America and any fundamental tax changes should seek to strengthen, not weaken, this vital sector of the economy,” Keating says.
In his testimony, Keating also notes that the administration is proposing a variety of new tax-favored savings vehicles.
For example, one proposal vehicle would allow individuals to contribute up to $7,500 to a savings account, earn tax-free interest and withdraw the money at any time for any reason without a penalty.
In its consideration of these proposals, Keating says that Congress should carefully evaluate the potential effect of any relative weakening of incentives for individuals to save specfically for their own retirement or other long-term needs.
“We are gravely concerned that one unintended, but very real consequence of this proposal could be the weakening of the nations private pension, life, annuity, long-term care and disability insurance system,” Keating says.
“Given the looming demographic changes in the United States, it is essential that private savings for retirement and private resources for protecting against the financial burdens of death, longevity, disability and long-term illness be strengthened,” he says.
When faced with near-term realities, he adds, many working Americans find it hard to save for long-term goals.