WASHINGTON (July 27, 2017) – The R Street Institute welcomes today’s announcement that congressional leaders will not give active consideration to a border-adjustment tax as part of comprehensive tax reform legislation.

In a joint statement on tax reform issued by leaders of the U.S. House, Senate, Treasury and the National Economic Council, the parties concluded that while they “have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.”

“Border adjustability is a complex subject, but our research underscored the deep concern that, if not properly structured to exempt financial services transactions, the proposed tax could have caused serious harm to U.S. and international insurance and reinsurance markets,” R Street Senior Fellow Lars Powell, a professor of insurance at the University of Alabama and lead author on a seven-part series of R Street papers examining the impact of border tax on insurance products.

Their conclusion is a victory for insurance consumers throughout the nation who would have been subject to higher rates for identical levels of protection. According to R Street research, among the effects of applying the tax to cross-border reinsurance transactions would be to raise the cost of property insurance over the next decade by $3.39 billion in Texas, $1.91 billion in California, $1.21 billion in New York, $1.11 billion in Louisiana, $800 million in North Carolina and $740 million in the New Madrid Seismic Zone. The proposal also would have raised the cost of life insurance and annuities products by $59 billion, and reduce the amount sold by $24.6 billion, over the next 20 years.

Though the BAT has been sidelined, other threats to affordable insurance remain. In the months to come, it will be vital for Congress to avoid pursuing a reciprocal tax, a territorial tax or a discriminatory tax on insurance affiliates. All would have substantially similar impact on insurance markets as a BAT.

“R Street is committed to the cause of tax reform and looks forward to working with members of Congress and the administration as they consider alternative ways to simplify the code, broaden the base and pursue pro-growth policies for all Americans,” R Street Senior Fellow Ian Adams said.

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