Corporate tax laws can impact Main Street consumers

Congress is moving forward with tax reform legislation, and one proposal under consideration could have far-reaching and unintended consequences for the insurance industry and, more importantly, for the consumers it serves.

Lawmakers are considering placing a cap on the corporate state and local tax (C-SALT) deduction — a move that, while perhaps aimed at increasing revenue, threatens to raise the cost of vital financial protection products for American families. NAIFA strongly opposes this proposal, recognizing the significant economic ripple effect it would have across the insurance and financial services industries.

At its core, the C-SALT deduction is not a loophole or a special interest provision; it is a long-standing and legitimate recognition of business expenses. Just as businesses are permitted to deduct costs related to labor, materials and rent, they also deduct the taxes they are obligated to pay to state and local governments. These are real, unavoidable costs of doing business. Removing or limiting this deduction would, in effect, result in taxing businesses on income they do not have.

This issue becomes particularly important for insurance companies, which already bear a unique tax structure. In addition to paying standard business taxes such as income, property, sales and unemployment taxes, insurers are also required to pay premium taxes based on revenue rather than profit. These taxes apply regardless of a company’s profits in a given year, making them especially inflexible. A cap on the C-SALT deduction would prevent companies from fully deducting these mandatory state taxes, significantly increasing their federal tax liability.

Consumers will pay the price

Some producers may be inclined to think that this is a burden for insurance companies to bear and not one that will significantly affect their business. Unfortunately, the elimination or reduction of the C-SALT deduction would almost certainly have a significant impact on the ability of financial professionals to provide cost-effective solutions to consumers.

The cost of this tax increase inevitably would be passed on to consumers through higher premiums and more expensive financial products. A limitation on the C-SALT deduction would function as a hidden tax on all forms of insurance, including life insurance, annuities and other financial protection products that are essential for long-term financial planning. For consumers already navigating inflation and economic uncertainty, any increase in cost could deter them from obtaining the protection they need.

Beyond its impact on consumers, capping the C-SALT deduction would also negatively affect the broader economy. According to analysis by the Tax Foundation, such a cap could effectively raise corporate tax rates by 3% to 5%. This would reduce U.S. gross domestic product by up to 0.2% and lead to the elimination of about 46,000 jobs. These are tangible consequences that should give lawmakers pause.

It is also important to address several common misconceptions that have surrounded this debate. Some have suggested that limiting the deduction would encourage states to lower their tax rates to attract business, but this is a flawed argument. Most corporate taxes are not determined by where a company is located but by where it does business. As a result, corporations cannot easily avoid state taxes by relocating, and a C-SALT deduction cap would do little to change how states set their tax policies.

Financial professionals have a say

NAIFA recognizes the urgent need for our industry to speak out against this proposal. That is why we mobilized our members to attend the 2025 Congressional Conference in May in Washington, D.C. This event provided a critical opportunity for financial professionals to meet directly with lawmakers, share real-world perspectives and advocate for sound policy that supports both businesses and consumers.

Financial professionals are in the business of preparing clients for life’s uncertainties. It is important that the tools you offer remain affordable and accessible. Capping the C-SALT deduction undermines that mission and places an unfair burden on families seeking financial security.

Congress must consider the broader implications of this policy. Tax reform should aim to promote economic growth, not stifle it. It should support working families, not increase their financial burdens. NAIFA urges lawmakers to reject any proposal that caps the corporate SALT deduction and to prioritize policies that preserve affordability and stability in the insurance marketplace.

Update: The House of Representatives passed a version of the reconciliation bill that does not include a C-SALT deduction cap. The Senate is now considering the bill and is very likely to make changes, though the addition of a C-SALT deduction cap doesn’t seem likely. This remains an important issue for insurance and financial professionals to understand, and in Washington ideas like the C-SALT cap have a tendency to return in future legislation. NAIFA remains vigilant on this issue.

Kevin Mayeux, CAE, is NAIFA’s CEO. Contact him at [email protected].