MEETING
Ricchetti agreed with Kies that the two
parties have “taken irreconcilable political positions.” But he expressed hope that
the killing of al Qaeda leader Osama bin
Laden, announced by President Obama
on May 1, just as the AALU conference
was starting will provide a “unifying atmosphere” in which Republicans and Democrats can bridge differences.
he added, however, that serious negotiating will require the parties over the
coming weeks to “put everything on the
table.” And he noted the political rhetoric
of recent weeks will make the task “
extraordinarily difficult.”
Turning to the potential impact of deficit reduction negotiation on producers,
the panelists agreed that the tax-favored
treatment of life insurers remains a target.
Kies noted this is annually cited by the
Congressional Budget Office as a deficit
reduction “option.” Taxing the inside buildup of permanent policies, he added, would
generate more $200 billion over 10 years.
Cadin said that a phrase adopted by
Democrats to describe tax preferences in
the Internal Revenue Code—tax expenditures—could make the taxing of life insurance more appealing.
“There is no question that Democrats
want tax increases as part of a deficit re-
duction package,” he said. “And ‘spending’
through the tax code doesn’t really sound
like a tax increase.”
Ricchetti said the industry could be
negatively impacted if an overhaul of the
tax code takes the form of lower marginal
tax rates for high income earners, as many
Republicans advocate. Life sales might
also suffer if, as left-of-center think tanks
have proposed, the tax-favored treatment
of life insurance were limited through in-
come-testing.
“Individuals with higher incomes
might have a lower chance of being able
to take advantage of tax preferences [of-fered on life insurance],” he said. “
Income-testing could easily be embedded in a tax
reform bill.”
Kies, however, was skeptical tax reform
will happen this year because any effort to
simplify the IRS code by removing tax preferences is “complicated.” The initiative, he
said, affects a myriad of interests that have
a vested stake in maintaining current tax
credits. Among them: the home mortgage
interest deduction.
“Tax reform is enormously complicat-
ed,” Cadin said. “We as an industry have a
vested interest in the discussion. Our mes-
sage to Congress needs to be: the tax code
needs to incent people to save. And life in-
surance is a big piece of saving incentives.
There’s a lot of stake.”
Ricchetti expressed confidence that the
industry will be able to rebuff potential
challenges to its tax preferences. he noted
that industry lobbying campaigns current-
ly are backed by $16-17 million in funding
from AALU member companies. And he
noted the AALU has “market-tested” its
advocacy messages. Among them: that
the savings component of life insurance
is critical to helping consumers achieve
financial security in retirement.
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