US insurers look forward to level playing field with GOP tax reformsReprints
Many U.S. insurers say they believe the federal tax reform framework released by Republicans last week will finally put them on even footing with their overseas competitors.
The nine-page proposal, announced by President Donald Trump on Sept. 26, calls for a broad simplification of the tax code, including ending taxation of U.S. companies’ worldwide income, moving to a territorial system, where companies would not be taxed on their overseas earnings, and eliminating the corporate alternative minimum tax. The corporate tax rate would also be reduced to 20% from the current 35%.
The American Insurance Association, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America and the Reinsurance Association of America issued a joint statement praising the release of the framework, dubbed Unified Framework for Fixing our Broken Tax Code.
“The P&C industry is pleased to see the framework’s plan for reducing the corporate tax rate to 20% and eliminating the alternative minimum tax,” the statement said. “The framework takes positive steps to address other business taxes in an effort to increase simplicity, efficiency, transparency, compliance and global competitiveness.”
Anthony Nitti, Aspen, Colorado-based tax partner for WithumSmith+Brown P.C., said, “It doesn’t surprise me that U.S. corporations are waking up happy today because we’re moving to a system that may or may not achieve its objectives, but it definitely is more reminiscent of the system most countries are using, so it just kind of levels the global marketplace.”
“I think it’s another step forward,” Mr. Nitti said, “but it’s very frustrating for the people in the tax community because President Trump said that his tax plan was finalized and what we got was certainly not a finalized tax plan. It’s exactly what it’s called — it’s a framework.”
President Trump has experienced some setbacks in his administration’s plans, including failed attempts to repeal and replace the Affordable Care Act, also known as Obamacare. Getting the framework through, Mr. Nitti said, is “not going to be a walk in the park by any stretch.”
“You can’t have your cake and eat it, too,” he said. “So President Trump stands up there and says, ‘I’m giving you the biggest tax cut in the nation’s history’ — by definition that can’t work unless he wants to forgo the reconciliation process and expect Democratic approval,” he added, referring to the possible need for 60 votes to overcome a Democratic filibuster.
Robert Gordon, senior vice president of policy development and research for Washington-based PCI, said property/casualty insurers are generally “very supportive” of the framework.
“And that’s because P/C insurers represent 0.86% of the U.S. (gross domestic product), but 3% of the federal corporate income taxes,” he said. “We also pay significant state premium taxes, so our industry is severely overtaxed compared to our percentage of the U.S. GDP, so anything that significantly makes our companies more competitive and less costly, less burdensome for consumers, is going to be very helpful.”
Mr. Gordon added that “corporate tax reform should be a bipartisan issue because President Obama proposed for several years that we needed to reduce the U.S. corporate tax rate because it’s now become the highest in the developed world.”
As far as the plan’s success, Mr. Gordon said he thinks many people in Washington believe tax reform will likely pass in the first third of 2018.
“The Republicans promised the voters the top three ticket items: tax reform, health care and immigration reform,” he said. “Health care doesn’t look particularly likely at this point. It’s unclear what’s going to happen with immigration reform. So they have to deliver on tax reform, or they’ll pay price for it at the next election.”
James Auden, managing director at Fitch Ratings Inc. in Chicago, said that lowering the corporate tax rate is a positive for insurers. Overseas competitors who have a lower tax rate would lose that advantage if the tax cuts go through, he said.
Mr. Auden declined to say what the plan’s chances are of getting through Congress, but said it was “definitely something to watch.”