The Obama administration frequently touts its support for reducing the tax burden on middle class families, thereby helping them save for retirement. Yet its tax proposals sometimes seem at odds with this seemingly benign intent.
For evidence of this, look no further than the administration’s budget for fiscal year 2016. In enacted, the proposal would impose a fee on financial institutions with assets of more than $50 billion, based on the liabilities they hold on their balance sheets.
This proposal is a bad idea, for it will only drive up the cost of doing business for these institutions (life insurers included). And that added cost will be passed onto consumers. Upshot: Middle market consumers will pay more for two vehicles they depend on to secure their financial futures: life insurance and annuities.
Uncovering the details
The administration’s proposal is wide-ranging. In addition to life insurers, the tax provision would encompass banks and bank-holding companies, savings and loan institutions, asset managers, broker/dealers, specialty finance firms and financial captives. The fee would be determined by the financial liabilities (assets minus liabilities) of the institution. In respect to insurers, the proposal would also adjust separate account assets.
How many insurers would be affected by the tax proposal? SNL Financial examined the balance sheets of financial institutions holding $50 billion-plus in assets and determined that 25 publicly held insurers met the proposal’s criteria. The other institutions include 28 top-tier banks and thrifts and 23-SEC-filing nonbank institutions.
In total, 76 institutions will pay the fee. And we’re not talking small change.
Insurers on the target list could pay an aggregate of 2.09 billion in fees. Topping the list: MetLife Inc. ($0.36 billion), Prudential Financial ($0.30 billion) and American International Group ($0.24 billion)
Banks will be slapped with a bigger bill: an aggregate $7.6 billion in fees. And non-bank financial service institutions — Fannie Mae, Freddie Mac, Goldman Sachs and others — will dole out an additional 6.38 billion.