Once again the Obama administration has set its sights on insurance products as a potential source of government revenue. The President’s budget, released earlier this month, would impose new taxes on corporate-owned life insurance (COLI).
While the administration’s tax reform framework document calls COLI “a form of tax shelter,” it ignores the vital purpose COLI serves in protecting companies from financial losses that can occur when key employees die. Often, COLI policies ensure that affected companies can stay in business and continue as employers and contributors to the economy.
Many companies also use COLI to fund employee benefits, including retirement plans.
Imposing new taxes on COLI policies or doing anything to make these policies less useful would be a mistake. Given the economic turmoil of recent years, this type of insurance is more important than ever to ensure the survival companies that suffer the loss of key employees.
With many Americans financially unprepared for retirement and corporate belt-tightening threatening employee benefits at many companies, COLI-funded benefits are similarly as important as ever.
NAIFA, along with others industry associations expressed our deep concerns about provisions in the administration’s proposed 2013 budget that amount to new taxes on products that provide security and peace of mind. We will continue our efforts to educate the administration and lawmakers on the vital importance of insurance.
Experts have described the President’s budget proposal as “dead on arrival,” and a similar proposal to tax COLI in last year’s proposed budget went nowhere. Still, this serves as a reminder that as long as the government is running trillion-dollar deficits, tax-related threats to insurance products, even products that serve as important social and economic safety nets, will not go away.