Financial services firms will vigorously oppose a provision of the fundamental tax reform proposal released by Rep. David Camp, R-Mich., that calls for a federal tax on large financial services firms — including insurers designated as systemically significant.
“A targeted tax on financial institutions, regardless of form or motivation, is misguided and utterly at odds with the fundamental objective of comprehensive tax reform,” a group of financial services trade groups, that included the Property Casualty Insurers Association of America, said in a letter to the House and Senate congressional leadership sent late Wednesday.
The letter said the assessment will penalize customers, employees and investors, increase the cost of capital for American businesses, and “undermine the competitiveness of America’s financial sector — all of which will adversely impact economic growth and job creation. “
In a separate statement, Jack Dolan, a spokesman for the American Council of Life Insurers, added that, “This proposed tax, which would hit some life insurers, is a bad idea.” He said that, “Among other things, it could affect companies’ competitiveness, both domestically and globally.”
AIG, Pru and MetLife all declined to comment.
Moreover, the letter said, a tax on financial institutions would amount to a levy on lending, retirement savings, credit allocation, and financial services to businesses, households, municipalities, and investors with the effect of reducing availability and increasing costs.
The letter cited comments to Sen. Charles Grassley, R-Iowa, in 2010 from Congressional Budget Office Director Doug Elmendorf regarding a previous financial tax proposal. Elmendorf noted in his response to Grassley that the tax would undermine economic growth and job creation at a time when growth remains subpar and more than 20 million Americans remain either out of work or underemployed.
The Camp proposal calls for a .035 percent tax to be imposed on all financial company assets more than $500 billion as well as on all nonbanks designated systemically-significant financial institutions (SIFI). Its other major component as the price to pay for lower corporate and personal tax rates would be a 10 percent surcharge on large wage-earners, i.e., those earning more than $450,000. The proposal would also lower the allowance for home mortgage deduction.
Related story: Dozens of tax breaks to end in Camp’s plan
According to analysts at Capital Alpha Analysts LLC, the tax will impact such insurers as American International Group and Prudential Financial, which are designated as SIFIs. Once designated as a SIFI, as expected, MetLife would also have to pay this tax as well, the analysts said.
Ryan Schoen, an analyst at Washington Analysis, projected that the quarterly tax levy for Pru under the Camp provision would be $57.19 million, a total of $228.76 million annually, and for AIG, $14,465,150 quarterly and $57,860,600 annually.
Both Schoen and Charles Gabriel at Capital Alpha acknowledge that banks and large insurers would realize a substantially greater benefit from the corporate rate reduction proposed under the Camp plan than other industries, but that the 3.5 basis point quarterly tax on banks and nonbank SIFIs with assets more than $500 billion, as proposed in the draft legislation, would partially offset that gain. However, Schoen said the quarterly assessment on assets could be deducted from corporate income taxes.
Virtually all analysts say there is little chance in an election year that the Camp proposal will become law. Washington Analysis analysts called it “dead on arrival.”