President Obama’s framework for business tax reform casts an evil eye at corporate-owned life insurance, one of the industry’s most profitable products.
Besides taking particular aim at COLI, the framework, unveiled today, also appears to mirror the sweeping tax hikes on the insurance industry proposed last week in the president’s budget for 2013.
[See also: Obama Calls for Tax Hikes on Life Insurers]
While all the proposals regarding insurance were not fully disclosed, changing the tax treatment for certain policies would be one element of a broader tax hike package involving a number of industries.
The administration’s goal is to reduce the corporate tax rate from 35 percent to 28 percent.
Industry officials speculate that this includes reducing the separate account dividend received deduction and requiring expanded information reporting on life settlements.
At the same time, it would reform and expand the health insurance tax credit for small businesses.
This credit, created in the Affordable Care Act, helps small businesses afford the cost of health insurance, according to analysts at Washington Analysis.
Analyst Ryan Schoen said that “this reform would allow small businesses with up to 50 workers to qualify for the credit (up from 25), provide a more generous phase-out schedule, and substantially simplify and streamline the tax credit’s rules.”
Schoen said that the odds for legislative action on these items in the “near-term are negligible.”
Nonetheless, he said, “they represent a starting point for the debate, which will unfold in earnest in 2013.”
As for COLI, it would end the ability of top officials and directors of business from benefitting from inside buildup that is tax-deferred or never taxed, and financed through debt that allows the corporation to take interest deductions earlier than any gain realized on the life insurance.