The variable annuity industry should be wary of the Bush administrations tax agenda, which could make annuities a much less attractive product, says Rep. Earl Pomeroy, D-N.D.
Already, he says, annuities have suffered from the administrations tax policies because of the failure of the most recent tax bill to pass through the dividend tax deduction to annuities.
Pomeroy, who spoke to the annual Regulatory Affairs Conference sponsored by the Reston, Va.-based National Association for Variable Annuities, notes that his views may be seen as those of a Democrat speaking to a largely Republican audience.
However, Pomeroy says, he believes the administrations agenda is to eliminate completely all taxation on investments and put the entire burden on wage earners.
That, he says, is not good for annuities.
Consider, he says, what happened on the dividend tax reduction. The first version of the proposal did not pass the tax reduction through to annuities, he notes.
However, Pomeroy says, Treasury Secretary John Snow promised that the industrys concerns would be resolved through a “technical correction” that would be inserted in the bill sometime during the legislative process.
But it did not happen, he says. “You are due a tax incentive. You were promised one and didnt get it.”
Beyond that, Pomeroy says, the administrations retirement savings proposal, which would create a variety of new tax-favored savings accounts, would completely eliminate the competitive edge of annuity products.
There is a need for insurance products that protect against the risk of living too long, Pomeroy says, but the Bush administration pays no heed to that need.
Pomeroy adds that Bush has been “cleaning up” with his legislative agenda, noting that Congress approved a $350 billion tax reduction pushed by the administration despite the budget deficit.
While he may not agree with the administrations agenda, Pomeroy says, the administration has been very effective in getting it enacted.
Turning to the issue of corporate governance, Pomeroy says Congress addressed this issue in response to several events.
These included, he says, the general downturn in the economy, the extraordinary examples of corporate abuse and the political dynamic.
Pomeroy says some Enron executives were close to the president and this created a competition between the majority party and the minority party over who could protect the public best.
It became a “foot race,” Pomeroy said, with each party coming up with more draconian proposals.
“We would have been executing corporate executives for punctuation errors in financial statements but for the August recess,” he says.
Then, according to Pomeroy, the issue of Iraq took center stage and the Sarbanes-Oxley bill was completed in less volatile circumstances than otherwise would have been the case.
However, he says, the whole area of investor protection will remain hot.
Nonetheless, Pomeroy says, interest groups continue to play a major role in shaping the congressional agenda.
The life insurance industry, he says, has built up a strong ability to affect issues, and there are significant upside opportunities for industry issues ahead.
For example, Pomeroy says, the issue of class-action legal reform, which the life insurance industry supports, was driven by Washington-based interest groups.
On retirement savings, an issue which now has much currency, the financial services sector shaped the debate, he says.
Washington-based interest groups are also driving insurance regulation, he says.
He urges the industry to support his legislation, H.R. 2458, that would allow retirees to exclude from income up to $3,000 annually of payments from an annuity.
The legislation, called the Secure Annuity Income for Life Act, would benefit a broader portion of the population than the industrys Lifetime Annuity Payout proposal, which would allow retirees who annuitize their retirements savings to pay tax at the capital gains rate rather than the ordinary income rate, says Pomeroy.
Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 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.