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Life Health > Life Insurance

NAIFA: Republicans Not Necessarily Rescuers

By Warren S. Hersch

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SEATTLE — Lobbyists on a panel here at the National Association of Insurance and Financial Advisors annual meeting warned against assuming that all producers need to do to protect their interests is to get Republicans elected in November.

Pat Raffaniello of Raffaniello & Associates L.L.C., Washington, said efforts to impose more regulations – and tax hikes — on the insurance industry are in the offing no matter who wins the elections.

The federal government now has a $1.3 trillion budget deficit, and it wants to fix the alternative minimum tax and extend at least some of the tax cuts enacted in 2001 and 2003, Raffaniello said.

Republican control of the House and Senate would not necessarily help the situation, because “choices will have to made” about taxing insurance products, Raffaniello said.

“And that’s where you [NAIFA members] come in,” Raffaniello said. “Without you being involved politically–getting to know your member of Congress, responding to NAIFA [e-mailed] GovAlerts, and participating in IFAPAC, we on the government relations committee can’t save you. Only you can save yourself.”

Magenta Ishak, an assistant vice president at NAIFA, Falls Church, Va., gave a similar warning.

“When the House Republican leader and quite possibly next speaker of the U.S. House of Representatives starts talking about special carve-outs in the tax code, you need to sit up and pay attention,” Ishak said.

The major political tax debates will no longer pit business against labor, but businesses against businesses–and insurers could end up on the losing end, Ishak said.

“So,” Ishak said, “if you think that all we need to do is elect a Republican majority to the Congress and all 50 state legislatures, I’ve got a bridge in Brooklyn I’d like to talk to you about.”

Michael Kerley, a NAIFA senior vice president, said NAIFA has succeeded so far at protecting the tax-favored treatment of life insurance, and especially at protecting the tax-deferred growth of cash values, or “inside buildup,” in permanent life insurance policies.

The industry failed to keep Congress from imposing a new 3.8% Medicare tax on

the unearned income of high-earning taxpayers, but industry efforts have beaten back many other attempts by Congress to tax life and annuity products, Kerley said.

“Except for the nick we took on annuities, we dodged all of the bullets,” Kerley said. “But there is no room for complacency, because we envision five ways that Congress could still impact the inside build-up of life insurance. The most dangerous, in our view, is limiting the tax-deferred inside buildup to people earning below a certain income level.”

Danea Kehoe, a consultant to NAIFA, agreed, adding that the Congress likely will set the benchmark at a modified adjusted gross income (MAGI) of $200,000 per individual and $250,000 per couple. People earning more than these income levels will have to pay income tax on not only the individual policies they personally fund, but also on premium contributions their employers make to fund employee benefits, she predicted.

Alternatively, said Kehoe, Congress could limit the tax-deferred growth of policy cash values to a specified amount. Similar caps, are being contemplated for other retirement savings vehicles, such 401(k)s, individual retirement accounts and defined benefit pension plans because Congress faces an “immediate and urgent” need for tax revenue, she said.

Gary Sanders, a NAIFA vice president, said the threat of greater industry regulation comes not only from the federal government but also from the states.

“The states are desperate to cut their deficits and balance their budgets,” he said. “And they’ve zeroed in on our industry as a way to bail themselves out. In 2010, we saw numerous states put forward proposals that would raise existing taxes, broaden the scope of what’s taxed and scale back existing credits.”

To confront these challenges, he said, NAIFA and the American Council of Life Insurers, Washington, have formed the State Tax Challenges Coalition, which also has the backing of members of the Association for Advanced Life Underwriting, Reston, Va.

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