NAIFA Meeting: Democrat Pans Tax Expenditure Chart

WASHINGTON — Federal analysts made a mistake recently when they included the tax rules governing life insurance death benefits and the buildup of cash value inside permanent life policies on a list of deficit reduction targets, according to Rep. Richard Neal, D-Mass.

Neal spoke here this week at the closing general session of the National Association of Insurance and Financial Advisors annual meeting.

Analysts at the congressional Joint Committee on Taxation and the Congressional Budget Office have suggested budget cutters could increase federal revenue by tackling “tax expenditures” – tax breaks that lower federal revenue.

Supporters of the tax expenditure concept say tax expenditures serve the same purpose as direct federal spending but lead to confusion in the minds of taxpayers and others.

Critics of the concept note that a “tax expenditure” simply lets people who earned income keep more of their income.

Neal told members of NAIFA, Falls Church, Va., that he believes budget analysts have been improperly characterizing rules exempting inside buildup from income taxes as a tax expenditure.

“Permanent life insurance was designed to overcome the obstacle of term insurance becoming prohibitively expensive at older ages or due to health deterioration,” Neal said. “Long before the institution of the income tax on 1913, the concept of inside buildup was designed to support level premiums and guaranteed death benefits for life. It was not developed to escape current taxation…. Inside buildup does not represent an exception from longstanding, fundamental tax principals.”

The new Joint Select Committee on Deficit Reduction – the 12-member “Super Committee” that is supposed to find $1.2 trillion in deficit reductions by Thanksgiving – “won’t have time time to consider comprehensive tax reform,” Neal said.

Efforts to reform the tax code should be undertaken by the the House Ways and Means Committee and the Senate Finance Committee, Neal said.