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A different kind of climate change

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The decision in mid-February of Sen. Mike Johanns, R-Neb., not to seek re-election is part of a disturbing trend, where experienced members of Congress are exiting Washington.

They are doing so because they are not comfortable with the end of the collegial atmosphere that facilitated bipartisan solutions to the nation’s problems.

That atmosphere has been replaced by ceaseless backbiting, a climate where insults, distortions and intrigue are the norm.

Johanns’ decision is a key loss to the insurance industry, along with that of Sens. Tom Harkin, D-Iowa, and Saxby Chambliss, R-Ga.

Johanns, a member of the Senate Banking Committee, had become an integral part of Congressional efforts to deal with issues critical to the insurance industry. Harkins’ loss is even greater. A senior member of Congress, Harkin is a powerful voice across committees and on the floor on insurance interests important to Iowa, where insurance is a key industry.

Chambliss was a member of the “Gang of Six,” which has been laboring for some time to develop a bipartisan approach to tax reform and deficit reduction.

Resolution of that issue is key for the insurance industry, and Chambliss’ decision to retire is a clear signal that he sees his multi-year effort to march across the aisle in search of a moderate course of action on deficit reduction have led nowhere.

Tom Friedman of the New York Times put it best Feb. 16 when he talked about Apple holding on to its cash hoard of $137 billion. He said that, “There is no doubt our economy is primarily being held back by the deleveraging and drop in demand that resulted from the 2008 financial crisis. But they are being reinforced today by uncertainty and worry that we do not have our political house in order and, therefore, our tax, regulatory, pension and entitlement frameworks are all in play.

“So businesses, investors and consumers all hold back just enough for us not to be able to move the growth and employment meters with any robust momentum,” Friedman observed.

For the insurance industry, there is a lot on the line.

The key to selling insurance products is certainty in tax policy. After a decade of effort, the fiscal cliff deal finally brought certainty to the estate tax policy, long considered the lynchpin to the sale of insurance products.

But remaining in the cross-hairs of congressional efforts to bring the deficit under control are other issues of critical importance to insurance underwriters and agents. These include certainty to government policies on taxation of inside buildup, Corporate-Owned-Life-Insurance and Bank-Owned-Life-Insurance, general federal tax rates, and non-qualified deferred compensation plans.

Also at risk as Congress debates long-term deficit reduction policy are the dividend-received deductions on variable annuity contracts.

The long-term care issue is another festering sore that needs to be dealt with. The industry was successful in repealing a provision of the healthcare reform bill that was an ill-conceived solution to the problem. Known as the Community Living Assistance Services (CLASS) Act, the provision was ridiculed from day one as unworkable, and it was repealed through a provision of the New Year’s Day “fiscal cliff” deal.

The CLASS Act was designed to be voluntary and open to all. It called for people to pay into a program that would have provided a basic lifetime benefit of a least $50 a day in the event of illness or disability.

The fiscal cliff deal also created a new national commission whose objective is to develop a plan for better financing and delivery of long-term care services.

But, the bill provides no enforceable mandate for a still-to-be-named commission to come up with a plan. With Congress and the president having difficulty agreeing on a plan that would replace automatic spending cuts that go into effect the beginning of the month, any hope that a commission can come up with a plan that will get through Congress within a reasonable period of time is far-fetched.

Moreover, calls for cuts in Medicare and Social Security, plus the virtual end to new defined benefit plans places new pressure on Congress to act as soon as possible to increase incentives for people to put more money aside for retirement.

All of these issues need to be resolved, and soon. But, providing a disincentive for senior people familiar with each other and existing policies is a major step backward.

The fate of the CLASS Act is a primary example. It was universally criticized as an impractical solution to a critical problem. But has anyone come up with a better one? As long as Washington continues its depressing brain drain, the prospects seem dim.

For more from Arthur D. Postal, see:


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