Does The Industry Have A Tax-Expenditure Or A Tax-Revenue Problem?

By Cyril Tuohy

InsuranceNewsNet

The issue of insurance industry tax expenditures figured high on the agenda of the National Association of Insurance and Financial Advisors (NAIFA), which met in San Diego this week for its annual convention.

Whether the government eventually manages to roll back tax exemptions across the board or pick off insurance-related pieces from the expenditures list remains to be seen. No bill rolling back insurance-related tax expenditures has been introduced so far.

Meanwhile, it’s worth taking a look at how much the insurance industry benefits from the tax expenditures.

“The expenditures related to the insurance industry alone amount to about $3.2 trillion,” Juli McNeely, incoming president of NAIFA, said in an interview with InsuranceNewsNet’s Linda Koco.

Where exactly do all these insurance industry exempted amounts from individual or corporate income taxes lie?

Luckily, the staff of the Joint Committee on Taxation has done much of the legwork in a 45-page report delivered last month to the House Ways and Means Committee and the Senate Finance Committee in Washington.

Get ready to read about how much the insurance industry will benefit from the exclusions over the next four years ending in 2018. Off we go:

Exhibit A: Exclusion of investment income on life insurance and annuity contracts. Exemption: $158.1 billion.

Exhibit B: Small life insurance company taxable income adjustment. Exemption: $200 million.

Exhibit C: Special treatment of life insurance company reserves. Exemption: $15.4 billion.

Exhibit D: Special deduction for Blue Cross and Blue Shield companies. Exemption: $2.1 billion.

Exhibit E: Tax-exempt status and election to be taxed only on investment income for certain small property and casualty insurance companies. Exemption: $400 million.

Exhibit F: Interest rate and discounting period assumptions for reserves of property and casualty insurance companies. Exemption: $12.2 billion.

Exhibit G: Proration for property and casualty insurance companies. Exemption: $2 billion.

And now for the big, big exclusions in the health and income security arenas:

Exhibit H: Exclusion of employer contributions for health care, health insurance premiums and long-term care insurance. Exemption: $785.1 billion.

Exhibit I: Exclusion of medical care and TRICARE medical insurance for military dependents, retirees and retiree dependents not enrolled in Medicare. Exemption: $12.2 billion.

Exhibit J: Exclusion of health insurance benefits for military retirees and retiree dependents enrolled in Medicare. Exemption: $4.1 billion.

Exhibit K: Deduction for health insurance premiums and long-term care insurance premiums by the self-employed: Exemption: $29.4 billion

Exhibit L: Deduction for medical expenses and long-term care expenses. Exemption: $59.9 billion.

Exhibit M: Exclusion of workers’ compensation medical benefits. Exemption: $25.1 billion.

Exhibit N: Health savings accounts. Exemption: $11.5 billion.

Exhibit O: Exclusion of interest on state and local government qualified private activity bonds for private, nonprofit hospital facilities. Exemption: $12.5 billion.

Exhibit P: Tax credit for small businesses purchasing employer insurance. Exemption: $6.2 billion

Exhibit Q: Subsidies for insurance purchased through health benefit exchanges. Exemption: $318.1 billion.

Exhibit R: Exclusion for Medicare benefits parts A, B and C. Exemption: $350.2 billion.

Exhibit S: Exclusion of workers’ compensation benefits, disability and survivors’ payments. Exemption: $14.4 billion.

Exhibit T: Exclusion of damages on account of personal physical injuries or physical sickness. Exemption: $9.4 billion.

Exhibit U: Exclusion of special benefits for disabled coal miners. Exemption: $100 million.

Exhibit V: Net exclusion of pension contribution and earnings, Keogh Plans, defined benefit and defined contribution plans. Exemption: $699.4 billion.

Exhibit W: Exclusion for traditional and Roth individual retirement accounts (IRAs). Exemption: $99.7 billion.

Exhibit X: Credit for certain individual for elective deferrals and IRA contributions. Exemption: $6 billion.

Exhibit Y: Exclusion of other employee benefits — premiums on group term life insurance (excluding payroll taxes) and premiums on accident and disability insurance. Exemption: $38.1 billion.

Exhibit Z: Exclusion of survivor annuities paid to families of public safety officers killed in the line of duty. Exemption: $100 million.

Billions of dollars more in insurance industry expenditure savings are available to the government by eliminating estate and inheritance tax breaks.

Even so, Tom Cothron, a Farm Bureau agency manager in Ocala, Fla., said he feels threatened more by “overreaching regulation from the federal government in the effort to get more tax revenues,” than he does by the trimming back of tax exemptions.

“Tax expenditures are not the problem; overspending by the government is the problem,” he said in an interview with InsuranceNewsNet.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].