Life insurance industry trade groups said in a strong statement today that they will urge the Obama administration to withdraw proposals contained in the president’s budget that would impose new taxes on life insurers.
The statement was released by the American Council of Life Insurers, the Association for Advanced Life Underwriting, the National Association of Insurance and Financial Advisors, the National Association of Independent Life Brokerage Agencies and GAMA International.
[See also: Obama Calls for Tax on Life Insurers]
Trade groups also voiced particular concern about provisions that would impose new taxes on contributions to retirement plans and Individual Retirement Accounts.
In a statement, the industry said that the proposed budget for 2013 “reasserts two provisions—one on corporate-owned life insurance (COLI) and one on life insurers’ dividends-received deduction (DRD)—that were initially proposed in the 2010 budget but rejected by Congress.”
The groups added that the COLI proposal would impose new taxes on life insurance used by businesses small and large.
“Many businesses use COLI to protect against financial or job loss stemming from the death of owners or key employees,” the statement said.
It added that COLI is also used to ensure business continuation. “In addition, COLI is a widely-used funding mechanism for employee and retiree benefits,” the statement said, adding that “Congress affirmed the benefits and tax treatment of COLI and assured its responsible use in bi-partisan legislation enacted in 2006.”
The statement added that, “Wisely, Congress has rejected similar proposals in past years. We urge the administration to withdraw its proposals on COLI and DRD.”
At the same time, the Insured Retirement Institute issued its own statement regarding the DRD proposal.
IRI president and CEO Cathy Weatherford said the trade group’s research has shown that “the tax-deferred status of annuities has been pivotal in helping middle-income Americans utilize lifetime income strategies as part of their retirement savings plan.”
She said that removing this incentive would not necessarily increase tax revenue, but certainly would add a new barrier that would prevent Americans from attaining lifetime income coverage.
“With today’s unprecedented retirement challenges, now more than ever, we need to protect the incentives available to help Americans attain a financially secure retirement,” Weatherford added.
The new limitations on deductions for retirement contributions would extend to any tax-exempt state and local bond interest, employer-sponsored health insurance paid for by employers or with before-tax employee dollars, health insurance costs of self-employed individuals, employee contributions to defined contribution retirement plans and individual retirement arrangements.
It also calls for the deduction for income attributable to domestic production activities, certain trade and business deductions of employees, moving expenses, contributions to health savings accounts and Archer MSAs, interest on education loans, and certain higher education expenses.
However, Martin Sullivan, a contributory editor for Tax Analysts, an independent organization, cautioned that the proposals are unlikely to see the light of day.
He said he found the budget proposal makes little movement toward reform and more ‘politics as usual’ in tax provisions.