Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

Time to rethink political advocacy on Capitol Hill

Your article was successfully shared with the contacts you provided.

The 976-page discussion draft unveiled in February by the top tax writer in Congress, House Ways and Means Committee Chair David Camp (R-Mich.), poses a serious challenge to the life insurance industry and its customers. As with previous Congressional challenges to the tax-favored treatment of their products, life insurers and their lobbying arms in Washington are girding for a fight.

Before they commit to a battle plan, I suggest they take a different tack this time — one that might yield a better return over the long haul. Rather than focus solely on lobbying against the discussion draft’s industry-impacting tax provisions, lobbyists for the industry’s trade organizations — AALU, ACLI and NAIFA, among them — should meet with their counterparts at other associations to try to figure out how to raise much-needed tax revenue.

The benefits: The participants would gain a better understanding of the effects of potential tax law changes on other economic sectors represented at the gathering. Because they’ll have a seat at the inter-industry table, the lobbyists can be assured that the views of their respective industries will be represented in the legislative give-and-take.

Not least, recommendations to which the various industry groups agree might help to break the current gridlock in Congress — a paralysis to which the trade organizations have contributed in recent years by advocating often-opposing positions on issues.

I was reminded of this idea when I interviewed John Nichols last month at the 2014 annual meeting of the Million Dollar Round Table in Toronto. President of NAIFA, Nichols discussed issues that are top-of-mind for NAIFA and for Nichols’ own practice. Among them: compliance requirements, technological change, product innovation and, yes, tax laws changes that might prove bad for producers.

The last topic was also the subject of a phone conversation I had with Nichols and his vice president of government relations, Diane Boyle, one month prior to the MDRT meeting. The focus of the earlier chat was NAIFA’s 2nd annual Congressional Conference, held in May.

Like the annual meeting of the AALU, the NAIFA Congressional Conference has a political orientation. Some 1,000 NAIFA members flew to D.C. to meet with their Congressional representatives, a lobbying blitz that brought them into contact with more than 90 percent of the nation’s lawmakers. Their purpose: to warn against undertaking tax code changes that would negatively impact the 75 million Americans who buy life insurance products. Most of these people are middle class folks who earn less than $100,000 annually and are struggling to save for retirement.

NAIFA members going to Capitol Hill had much ground to cover. The document calls for imposing new taxes on employer-owned life insurance. It also modifies rules regarding the capitalization of certain policy acquisition expenses, including eliminating the 1.75 percent for annuity contracts. The proposal would also limit the use of “stretch IRAs.” It would additionally freeze until 2024 a $5,500 annual limit on Roth IRA contributions; cap tax-deferred 401(k) contributions at $8,750, with the remainder changed to Roth-style accounts; and repeal a rule allowing re-characterization of Roth IRA contributions or conversions.

These proposed changes, plus others of concern to the industry, would, in Boyle’s estimation, boost federal tax revenue by $87 billion to $500 billion, depending on what’s factored into the mix. However you add it up, the total is too big for the industry to ignore.

The strategies the life insurance associations have employed whenever lawmakers proposed an overhaul of the tax code — blanketing Capitol Hill with their members to insist on maintaining the tax-preferential treatment of their products — has worked to date.

But as a long-term strategy, such Capitol Hill campaigns may not be the answer, if only because they contribute to legislative gridlock — and hence makes likely a revisiting of the same tax issues in the future, forcing yet another blitz by association members.

Is there a better way? An inter-industry summit of trade group representatives, as discussed above, may be just the answer.

See also:

The Social Security cash crunch Congress can’t ignore

AALU to Congress: Don’t touch our products

Is the insurance industry using TRIA to pursue agendas?




© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.