Do you believe that foreign insurance companies should be able to conduct business in the United States and escape tax obligations? They do. And, for those decrying the Republican House tax plan, they’d be well advised to read the details before they attempt to defeat it.
For example, one provision in Section 4303 of the House tax bill would close the insurance, tax-haven loophole for foreign reinsurance companies.
Reinsurance is the backbone of the insurance industry. It's essentially insurance for insurance companies that mitigates catastrophic losses. For example, almost all property insurance companies buy reinsurance to help mitigate losses in the event of a hurricane or other natural disaster that causes billions of dollars in potential claims. With reinsurance, they share the catastrophic claims with multiple insurance companies thus lessening the financial damage to their balance sheet(s).
Unfortunately, the insurance tax-haven loophole (that the house bill seeks to eliminate) has created a mass-exodus of insurers from the United States to low or no-tax jurisdictions like Bermuda. Since its creation three decades ago, the share of American-based insurers in the U.S. insurance market has declined from 85 to 27 percent. Sixty percent of the top fifteen reinsurance companies in America are foreign based.
Moreover, close to 75 percent of Fortune 500 companies have money in off-shore tax havens according to a report by the US PIRG Education Fund and The Institute on Taxation and Economic policy.
Essentially, our current tax code incentivizes businesses (and insurance companies) to leave our country and create operations in tax-havens that cheat the American people out of desperately needed tax dollars and jobs.
By closing this insurance loophole, we empower American-based insurance companies to be more competitive while collecting more taxes. By igniting a repatriation of insurance companies (and growth in the market share of existing U.S. based companies), new jobs will be created to service the increase in domestic business - instead of offshore jobs in countries providing tax havens.
I’m a big believer in the phrase “a rising tide lifts all boats.” As companies repatriate due to the loss of tax havens and domestic companies increase their competitive advantage due to a neutral (and fair) tax environment, we will amplify the positive impact on our economy in terms of revenue, corporate profits and wage growth.
It’s fair to say that this tax proposal does raise taxes on the insurance industry as a whole. But it’s unfair to omit the reality that, by closing this loophole, it benefits domestic insurance companies which will positively impact middle-class workers and their wages. Many companies will choose to move back to the United States once their tax-haven loophole is closed.
It is despicable that foreign insurance companies (many of which originated in America before they expatriated) have been allowed to cheat our government and avoid paying tens of billions of dollars in taxes for the past three decades.
Opponents of the Republican tax proposal will cite polls that reflect a general disapproval by American citizens. These polls are misleading due to a public who has a misunderstanding of the damages being caused by our current, punitive tax policy and how these policies limit job and wage growth. When you look at specific policy components of the Republican tax proposal, a much different story emerges.
For example, 66 percent of Americans are very frustrated by the corporate use of tax loopholes (according to AndersonRobins.com) which means the majority of Americans would support Section 4303 becoming law.
Opponents of the tax proposal attempt to distort the proposal at a macro-level leaving Americans with impression it helps the wealthy citizens of corporate America and doesn’t address problems (paramount to the middle class) such as the ones being discussed here.
Opponents will counter my “anti-tax haven” argument suggesting that having a high number of foreign companies in our reinsurance marketplace will reduce domestic risk. They will assert that removing this ‘tax-haven loophole’ will increase prices due to higher taxes and that foreign companies would stop providing needed reinsurance services in the United States. This is simply a false narrative meant to invoke fear in an attempt to cloud enlightenment.
By increasing the number of businesses who repatriate their cash and operations to America, we will significantly increase gross domestic product, our tax-base, jobs, wages and investment. These accomplishments will not only negate the perceived disadvantages they will far outweigh them.
Repatriation of cash, companies and jobs lost to tax-havens through the reform being offered by the Republican House tax bill could create an economic boom in our nation of the likes not seen since late 1980s and 1990s (the period not coincidentally following the last major tax reform in our country’s history).
We must stop foreign entities from cheating the American people.
It is grossly disingenuous for opponents to call any of these policies “tax breaks for the rich.” By creating an advantageous tax environment for American companies while removing unfair advantages for foreign companies, we create wealth for all Americans.