“In this world nothing can be said to be certain, except death and taxes.”
Benjamin Franklin, 1789
Let’s add one more certainty: in a nation facing a $1.3 trillion budget deficit and a $14 trillion national debt, at least some of those responsible for getting that monster under control will be taking a hard look at taxing death benefits.
After President Obama released his FY 2012 budget proposal Monday (take a look at NAIFA’s summary and analysis), it’s now Congress’s turn to weigh in. And who’d like to bet that the tax status of life insurance and annuity products as well as health insurance and other employee benefits won’t come up at least once or twice during deliberations?
In the words of NAIFA consultant Dani Kehoe, Republicans call these “expenditures” while Democrats call them “tax loopholes,” and some members from both sides would like to reduce or eliminate them.
That’s why NAIFA offered the presentation "Tax Challenges: What to Expect From Congress and State Legislatures in the Coming Year" as the most recent installment of its monthly Webinar Series. (Note: NAIFA Webinars are a free benefit for NAIFA members. Sign-in is required to participate or view archived webinars. Members of the media who would like to view the webinar, please contact Mark Briscoe.)
NAIFA GR staff and consultants explained that as Congress and the president look for ways to close the deficit gap, most of the focus will be on discretionary spending and tax reform. And these two areas contain provisions near and dear to the insurance and financial industry.
“Many bad ideas will be floated and some will find their way into legislation,” said NAIFA consultant Pat Raffaniello.
Some of the targets may include (with their estimated budgetary values, 2010-2014, in bold):
- Life insurance (individual & corporate) inside buildup: $149.5 billion
- Pensions (employer contributions to defined benefit, defined contribution and self-employed [Keogh]) plans: $596.5 billion
- Employer-provided group health (and LTC) insurance: $659.4 billion
- Cafeteria plans: $163.1 billion
- Self-employed group health insurance: $27.9 billion
- Health Savings Accounts: $8 billion
- Group life and disability income insurance: $26.3 billion
- IRAs (traditional and Roth): $109.5 billion
Of course there are excellent reasons why these benefits are built into the federal code and should remain there. For one thing, they aren’t just important to the insurance and financial industry, they provide a critical financial safety net to more than 175 million American families. These benefits safeguard Americans’ wellbeing by protecting against the premature death of a breadwinner, helping families save money for the future with permanent life insurance and annuities, and protecting people’s retirement savings with disability and long-term care insurance. These products also serve a broader good. Life insurance, annuities and pensions provide capital to fuel economic recovery. The products NAIFA members provide also protect consumers and society by transferring risk from individuals and the government to private market insurers.
As the debate unfolds, it is critical that members of Congress understand that these products and the tax benefits they receive are a driving force of the U.S. economy and provide vital tools that allow lower- and middle-income Americans to claim and sustain financial independence.