NAIFA GovWatch

Deficit Reduction Commission Proposal Would Tax Permanent Life Insurance and Annuity Inside Build-up, Employer-Provided Benefits

Issue: Federal Taxes

Date: December 8, 2010

Update: On December 1, the President’s National Commission on Fiscal Responsibility and Reform (nicknamed the Deficit Reduction Commission, or DRC), completed its work without a formal vote on the deficit reduction plan coauthored by the Commission’s two co-chairs. The DRC plan proposes to repeal all “tax expenditures,” and therefore, would result in a tax on life insurance and annuity cash values, and on most employer-provided benefits. The report received announced-support from 11 of the 18 commissioners. Many lawmakers in both parties expressed support for repeal of “tax expenditures,” calling them not tax increases, but another form of spending.

Life insurance and annuity inside-buildup, and employer-provided benefits, are classified as “tax expenditures.”

The NAIFA summary of the DRC plan was distributed in a GovTalk on December 2.

Background: Critical federal budget challenges and restraints have lawmakers exploring all options to reduce the federal deficit including the current tax treatment of insurance products. NAIFA members are as concerned as anyone about the U.S.’s ever-mounting debt. NAIFA members counsel fiscal and budgetary restraint for their clients and see no reason why those same principles should not be applied to the U.S. Budget. On the other hand, NAIFA members know that life insurance, annuities and other financial risk-shifting products are the foundation for individual and family financial security. Most NAIFA members believe current tax incentives that apply to life insurance etc. have served individuals, families and the nation well.

NAIFA members have long been meeting with their elected officials to explain current tax policies that promote long term financial protection, security and retirement savings for individuals, families and businesses though life insurance, annuities and other life insurance industry products. Most NAIFA members believe this is good public policy.

On November 15, NAIFA along with other Tax Challenges Coalition members sent a letter to Congress sharing our views regarding the current debate on taxes and the deficit. While strongly supporting the goal of addressing the national deficit, we stated the essential need for public policy to recognize that more than 75 million American families rely on life insurers’ products for financial protection, long-term savings, and a guarantee of lifetime income at retirement.

Congress will not vote on the DRC plan this year, and may not vote on it “as is” next year either. However, parts of it - including the proposal to reform the tax code by eliminating or drastically reducing the number and scope of tax expenditures - are near certain to be part of the debates on deficit reduction and tax reform, starting early next year.

Grassroots & Grasstops Action: Because Congress is now focused on year-end government funding and tax rate extension legislation during this lame duck session of Congress, NAIFA will not ask its members to contact their lawmakers on the DRC plan right now. However, starting early next year, NAIFA members will be called on to contact their Representatives and Senators to explain how current tax rules governing life insurance, annuities and employer-provided benefits promote individual and family financial security and to urge the continuation of incentives designed to encourage people to tie up funds for long term financial security.

In preparation, NAIFA members should continue to build and grow relationships with newly elected freshmen and returning members of Congress.

Remember to:

Report all relationships with newly-elected or reelected Representatives and Senators to NAIFA using Legislative Contact Form.
Sign up for your legislator’s email list to keep yourself abreast of their positions and town hall meetings.
Get a jump on the education process by visiting with your Representative and/or Senators while they are home in December.
Explain the importance of life insurance, annuities and employer-provided benefits to your Representative and/or Senators. View NAIFA’s Talking Points and additional resources at www.SecureFamily.org.
Report back to NAIFA when a meeting has been arranged and provide a short report on how the meetings went by emailing apic@naifa.org.

NAIFA Staff Contact: Magenta Ishak, Assistant Vice President – Political Affairs; Diane Boyle, Vice President - Federal Government Relations; or Dani Kehoe, NAIFA Outside Counsel.

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