They’re at it again. Our members of Congress continue to sift through the president’s budget package and will continue to do so until their summer break. Before they go home and shake hands with the voters, you have a stake in asking your congressional representatives if they actually read about the target on your clients’ backs.
But before the bad news, let’s share some sunshine. There is nothing in any current legislation that appears to disturb the tax-favored treatment of the inside buildup of cash value life insurance. This situation could change at any minute. But for now, lawmakers realize that for many families, cash value life insurance remains one of the few meaningful savings mechanisms trusted and protected by a safe and secure industry.
We are watching our elected officials play dice as they try to figure out how to pay for the staggering cost of entitlement programs. Changes to the structure of individual retirement account programs and layered taxation that punishes those who worked hard and saved are likely in 2015 when Congress is not preoccupied with re-election.
In the meantime, House Ways and Means Chairman David Camp, R-Mich., is seeking to revise our tax code. Proposals now under review would have a negative impact on your clients.
Chris Morton, vice president of the American Association of Life Underwriters (AALU), believes that once Congress is able to pass a few key provisions that capture revenue from the roughly 75 million Americans who rely on life insurance, it will be difficult – if not impossible – to turn that momentum around.
AALU notes, “One provision, on company-owned life insurance (COLI), would impose new taxes on life insurance used by businesses small and large. Many businesses use COLI to protect against financial risk or job loss stemming from the death of owners or key employees. COLI also is a widely used funding mechanism for employee and retiree benefits. Congress affirmed the benefits and tax treatment of COLI and ensured its responsible use with bipartisan legislation enacted in 2006.
“The industry also is concerned about a whole new series of tax increases on life insurance companies that would, if adopted, make industry products such as life insurance and annuities less affordable. In the aftermath of the financial crisis and with people living longer than ever before, the guarantees offered by the industry are more important than ever. Proposals to make industry products less accessible make no sense.”
When agents are passive and assume that someone else is watching out for their best interests, everyone loses – their clients as well as their practice.
Now that billions of dollars reside in COLI and numerous other life-based products, the administration can begin to target the affluent. Their argument is that those making less than $250,000 a year as a couple rarely if ever have access to a COLI product. Fair enough. But this same administration and numerous congressional staffers are seeking to hit COLI hard and are seeking new models to tax the individual retirement account build-up that goes across all income levels.
David Walker, a candidate for Connecticut lieutenant governor and former chairman of the U.S. General Accounting Office, has a reasoned approach to the deficit debacle we face and how all of us can make sacrifices to relieve pressure points on the credit ratings of the United States. Walker said each taxpayer will sacrifice something in order for society to gain. I believe in my heart that most Americans would agree. However, the notion of NIMBY – “not in my backyard” – applies to everyone’s wallets. We want some other industry – some other segment of the economy – to pay.
That’s what is troubling me about the attack on COLI. Let’s say that those who lead our industry associations ultimately have to cave on this issue in 2014 in order to protect the inside value proposition. Let’s say assurances and handshakes give everyone a sense of relief.
Have you ever met any politician you could trust, especially those in Washington who are motivated by so many activists and political interests? I suspect that you will see some concessions by these associations this year in a belief that “we need to demonstrate that we want to be conciliatory.”
Fast-forward to next year. No ballot boxes. The debt continues to soar. The life insurance industry continues to remind society of its dividends, massive reserves and profitability. If I’m a member of Congress and have not heard from any constituents who are licensed, capable agents representing that industry, I yield. After all, silence is acquiescence.
Being silent in 2014 is not a healthy proposition for you, your practice and especially your clients. Start reading. Dig in. And remember, when you shake the hand of a congressional candidate this year, ask, “May I have a moment to get your specific opinion on something?”