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ACLI Attacks Obama Plan To Tax Some Annuity Income

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WASHINGTON BUREAU – Life insurers are blasting an Obama administration effort to raise revenue for Medicare by imposing a new tax on high-income Americans’ earnings from annuities and other investment vehicles.

Administration officials included the tax provision in a health system change proposal released Monday.

The provision would impose a 2.9% assessment on income from interest, dividends, annuities, royalties and rents collected by individuals earning more than $200,000 per year and families earning more than $250,000.

The proposed tax also would apply to capital gains, an administration official says. That would push the capital gains tax rate to 22.9% in 2011, up from 15% today and a rate of 20% now scheduled to take effect in 2011.

Obama also has embraced a Senate recommendation for increasing the Medicare payroll tax on the highest earners.

“I would encourage you to reevaluate this proposal that increases taxes on an important retirement security tool,” Frank Keating, president of the American Council of Life Insurers, Washington, has written in a letter to Treasury Secretary Timothy Geithner.

“Americans face unprecedented difficulties securing their retirement income in an environment that has shifted longevity, savings and other retirement risks onto the individual,” Keating writes. “In such a landscape, policy-makers should not create a disincentive for annuity products that help Americans address these risks.”

Instead of imposing a new tax on annuity income and other investment income, policymakers should provide new tax incentives for individuals who prepare for retirement by investing in annuities that offer lifetime income streams, Keating writes.