A simple lesson too many politicians have yet to learn; companies don’t pay taxes, consumers do. Any tax increase in the corporate rate is passed right along to me and you. That’s why my bar tab grows higher (it has nothing to do with the gallons of beer consumed). The barkeep, my version of Moe Szyslak, essentially hands me the government bill. It makes the product more expensive for the end-user, and they consume less. Great, we can argue, with alcohol. With life insurance? Not so much. But the latest attempt by the President to make us pay our way out of this mess targets the life insurance sector. According to the Wall Street Journal, Obama’s looking for $12.8 billion in new tax revenue from life insurers over the next decade, even as the federal government offers the struggling sector bailout funds. Makes sense, don’t it?
“Especially during a financial and economic downturn, increasing taxes on products and on an industry that encourages American consumers and businesses to plan for the future and effectively manage risk is unwise public policy,” the American Council of Life Insurers and the Association for Advanced Life Underwriting said in a joint statement. That’s putting it mildly.
The proposal’s supporters note the brunt of the impact will be felt in COLI business, and they’re just looking to close an unfair tax loophole. Fine, but color me skeptical of Washington do-gooders and their fairness claims. I see unintended consequences rearing their ugly heads in a big, big way. And this is really more of the Beltway bait and switch. Promise middle-class income tax cuts, and raise them everywhere else. And who really pays in the end?