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The insurance industry could face significant changes, both positive and negative, from the recently passed U.S. House and Senate tax reform bills, a panel of accounting experts said during a Tuesday webcast.
Financial services firm PricewaterhouseCoopers L.L.P. produced the 60-minute presentation, which sought to address some of the many issues insurers may be contending with in light of the recently passed tax reform bills.
“What you can take away from this,” Greg Galeaz, PwC’s U.S. insurance practice leader, told webcast listeners, “is there are a lot of moving parts and a lot going on with the new legislation.”
Among other things, both bills reduce individual rates across the board while roughly doubling the child tax credit and the standard deduction. Both plans eliminate deductions for interest on student loans for state and local income taxes, and both plans cap the property tax deduction at $10,000. The House bill eliminates the alternative minimum tax, while the Senate bill does not.
“Companies should form some type of steering committee,” Mr. Galeaz said, “with all of the affected areas represented to keep track of what they’re seeing, what’s changing, what’s been done, what needs to be done. That’s probably the most important thing we can recommend. It’s not just a tax impact. Try to get more people at the table involved and get those constituents at that table.”
Mr. Galeaz advised insurers to look at the potential impacts of the new tax laws and also see where they can create advantages.
David Schenck, PWC’s U.S. insurance tax leader, said all businesses are going to have to adjust to a “brave new world” in light of the sweeping changes contained in both versions of the legislation.
“In today’s world,” he said, “it’s challenging for U.S. multinationals to participate in offshore (merger and acquisition) activity because they frequently have to run their deal models by plugging in a 35% rate. Post-tax reform, they may be able to evaluate foreign targets in a different manner: applying only a local rate and making them more competitive with local buyers of M&A assets.
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.