R Street concerned by protectionist reinsurance tax proposal
Included in a tax reform discussion draft released by Chairman Max Baucus, D-Mont., the proposal would deny U.S. subsidiaries the ability to deduct the cost of reinsurance ceded to affiliates that are not subject to U.S. taxes.
“In order to make coverage available for big catastrophes – everything from earthquakes and hurricanes to crop failures to acts of terrorism – the U.S. market relies to a significant extent on insurance capacity provided by global companies,” R Street Senior Fellow R.J. Lehmann said. “This protectionist scheme, long sought by a handful of large domestic insurance groups, would inevitably make the United States less attractive to global insurers and reinsurers, encouraging them to commit their capital elsewhere.”
The plan is similar to earlier proposals from Sen. Robert Menendez, D-N.J., Rep. Richard Neal, D-Mass. and President Barack Obama. Analysis by the Cambridge, Mass.-based Brattle Group finds that insurance consumers would see their premiums rise by as much as $130 billion over the course of a decade.
Lehmann expressed optimism that Baucus and the committee remain open to alternative approaches, noting that staff have requested public comment on the draft’s reinsurance provisions with the proviso that staff members understand “that risk spreading is an important and valid part of multinational insurance operations.”
“This proposal would do more damage than harm, and are confident that members of Congress will come to understand that,” Lehmann said.