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Congress Cuts 2004 Mutual Relief From H.R. 1308

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Congress has left 2004 tax relief mutual life insurers out of the conference report version of H.R. 1308.[@@]

Mutual life insurers have been trying to persuade Congress to eliminate a tax on dividends paid to policyholders. Congress created the tax in 1984, when it sought to balance the interests of stock and mutual insurers by enacting Internal Revenue Code Section 809

Lobbyists for mutual life insurers earlier this year persuaded Congress to eliminate the tax forever starting in January 2005. The tax had been suspended for the past several years under a provision that expired Dec. 31, 2003. The current bill affects only relief for 2004.

The Section 809 controversy surfaced when the House and the Senate formed a conference committee to iron out differences between their versions of H.R. 1308, the Working Families Tax Relief Act of 2004.

Senate conferees wanted to include a provision suspending the Section 809 tax for 2004, but House conferees rejected the provision late Wednesday. The revised bill was passed by both the House and Senate Thursday.

Lobbyists for Massachusetts Mutual Life Insurance Company, Springfield, Mass., have led the fight against the Section 809 tax.

The Section 809 tax forces mutual life insurers to prepay taxes on income later distributed to policyholders in the form of dividends, MassMutual lobbyists have argued.

The Joint Tax Committee estimates the Section 809 tax will cost mutual life insurers about $50 million this year but is not confident about the estimate because the provision has been suspended for the past 3 years and the tax is based on an average of dividends for the past 3 years, a lobbyist familiar with the tax says. The tax is scheduled to be eliminated in January 2005 under a provision added to a pension bill passed by Congress earlier this year.

Mutual insurers have succeeded in adding sections that would kill the Section 809 tax to other bills, but no one knows whether President Bush will end up signing any of those bills.

Industry lobbyists persuaded the Senate to attach Section 809 to H.R. 1308, which is described as a bipartisan middle-class tax cut bill, in an effort to rush the measure through Congress.

Senate conferees Sens. Blanche Lincoln, D-Ark, Max Baucus, D-Mont., and Don Nickles, R-Okla., supported the insurers, but Sen. Charles Grassley, R-Iowa, chairman of the panel, voted no. The Senate conferees’ vote became moot when House conferees Reps. William Thomas, R-Calif., chairman of the powerful House Ways and Means Committee, and Tom DeLay, R-Texas, Senate minority leader, opposed it.

Among the institutions lobbying for suspension of the tax for 2004 were MassMutual; New York Life Insurance Company, New York; Northwestern Mutual Life Insurance Company, Milwaukee; and Guardian Life Insurance Company of America, New York. They are the largest remaining mutual life insurers. In the aggregate, mutual life insurers now control 10% of the market, down from 55% in 1984.

Although some sources told Congress Daily the mutual insurers would continue the Section 809 fight, a lobbyist says the mutual insurers are deciding what to do. “We’re considering our options,” the lobbyist says. “It is unclear whether we will pursue this.”

Now that the House Ways and Means chairman has come out against the measure, “it has to give you pause as to whether you will proceed in the face of that,” the lobbyist says.

Links to more information about H.R. 1308 are on the Web at


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