WASHINGTON (Feb. 2, 2015) – The R Street Institute today expressed concern about a plank in the White House’s proposed 2016 budget that would impose protectionist taxes on legitimate reinsurance transactions made by affiliates of non-U.S. companies.

The proposal, which the White House estimates would raise $7.39 billion over the next decade, would disallow the deduction for certain reinsurance transactions between domestic insurers and reinsurers and affiliates that are based offshore.

“This plan often is conflated with proposals to crack down on U.S. firms shifting money overseas. That’s not what this is about at all,” said R Street senior fellow R.J. Lehmann. “This tax would hit some of the oldest and most venerable European and Asian insurers and reinsurers, punishing them for the crimes of choosing to serve U.S. consumers, practicing responsible risk management and being located in countries with more reasonable approaches to corporate income tax than the United States.”

The proposal – and similar legislation from Sen. Bob Menendez, D-N.J. and Reps. Richard Neal, D-Mass., and Dave Camp, R-Mich. – would particularly impact states like Florida and California, which face significant natural disaster risks and depend on insurance and reinsurance capacity from firms headquartered outside of the United States. It also would hurt smaller U.S. insurers that rely on the affordable reinsurance that can purchased from firms doing business in the global market.

A report from the Cambridge, Mass.-based Brattle Group estimated taxing such transactions would cost consumers between $110 and $140 billion over the next decade.

“The goal is to give a leg up to U.S. firms who charge more,” said Lehmann. “It’s protectionism, plain and simple.”

Last year, R Street joined with seven other taxpayer and free-market groups – including Americans for Tax Reform, National Taxpayers Union and Americans for Prosperity – to send a letter to the Senate Finance Committee opposing these sorts of protectionist tax proposals.

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