In May, more than 700 NAIFA members attended the association’s Congressional Conference in Washington. During the conference, members visited their senators and representatives on Capitol Hill to ask them to carefully consider the negative effects the Camp tax reform draft would have, because its proposals would make it more difficult and more expensive for Americans and businesses to achieve financial security.
The tax regime outlined in the draft by House Committee on Ways and Means Chairman Rep. Dave Camp, R-Mich., extracts more than a half-trillion dollars from revenue sources that include the life insurance industry and would threaten the financial and retirement security of millions of Americans. This was the message NAIFA President John Nichols gave the attendees before they left for the Capitol.
Nichols thanked the members for coming to Washington and assured them that they are the best in sharing their client stories and showing how decisions made on Capitol Hill affect regular people back home. Nichols said: “We have information (that our elected officials) need to hear. We have stories about their constituents back home that they want to hear. The Congressional Conference is our big chance to tell them these things. Together we can and will make a difference.”
Joining Nichols on the podium was NAIFA Chief Executive Officer Dr. Susan Waters, who pointed out the importance of NAIFA members’ visits to Capitol Hill. “You help shape policy,” she said. “At last year’s Congressional Conference, you came to Washington and told your senators and representatives how the current tax treatment of life insurance is crucial to your clients. Our leaders listened. This year, the Camp proposal includes a comprehensive tax-reform plan, and President Obama, as he does each year, proposed a federal budget. However, neither of these proposals includes new taxes on the inside buildup or death benefits of life insurance or annuities. You can thank yourselves for that. Grassroots advocacy works!”
But there is an urgent need to educate Congress because the industry is not yet out of the woods. As Waters pointed out, the Camp draft does include $583 billion worth of changes to the tax code that would directly or indirectly impact the insurance industry – and not in a favorable way.
Kempthorne Addresses Conference
The timing of the NAIFA members’ visits to Capitol Hill was perfect, added former Idaho Gov. Dirk Kempthorne, who also addressed the attendees. Although the Camp proposal does not tax the inside buildup in financial products, it does contain new taxes on the life insurance industry and on retirement savings, added Kempthorne, who is president and CEO of the American Council of Life Insurers.
Using government numbers,Kempthorne noted that the Camp proposal would lower corporate taxes to 25 percent, which would save the life insurance industry as much as $20 billion over 10 years. But it could add $50 billion to life insurers’ tax bills – a net negative of $30 billion.
Although these proposals will not become law this year, Camp’s ideas have now been made public and will be used as a guide for future tax proposals. These new taxes on companies will lead to higher prices for clients and make it more difficult for Americans to prepare for a financially secure future. Lawmakers will know this, Kempthorne said, and will be impressed by hearing from them.
The Camp draft proposal is not the first tax proposal the industry has faced, Kempthorne pointed out. In fact, the principles of life insurance taxation were established during the Civil War.
When a tax on life insurance premiums was considered to fund the Civil War, Sen. Charles Sumner, R-Mass., said, “Here, you are proposing to tax those who have taxed themselves … that the nation might not have to support them.” His argument carried the day. And in 1866, the Treasury Department reaffirmed the importance of life insurance by ruling that life insurance death benefits are not subject to taxation.
Over a century later, this remains a fundamental principle of tax policy, and it should never change, Kempthorne added. “Society benefits when people are encouraged to take personal responsibility and save.”
The Power of Life Insurance
To illustrate this point, Kempthorne described how, during the American Revolution, the king of France was not eager to let the renowned sculptor Jean-Antoine Houdon sail the Atlantic to visit America to create a likeness of Gen. George Washington.
As a condition for Houdon going to America, the king demanded that a life insurance policy be purchased. The policy was secured and Houdon sculpted Washington’s bust. Houdon could travel to America because of the power of life insurance, Kempthorne said. “Life insurance is a true and noble calling, deeply embedded in our nation’s history and absolutely essential for America’s future,” he said.