As the saying goes, there are only two things that are certain in life: death and taxes.
So one can easily imagine that if there was a way for a certain group of people or businesses to somehow make their taxes vanish into thin air and not have to pay them, they would surely take advantage of it.
Well, it seems like foreign-based insurance companies have found that magical vanishing act with the Insurance Tax Haven Loophole, and they've been taking advantage of it for thirty years.
Using an obscure maneuver called "affiliate reinsurance" they transfer profits accumulated in the U.S. to their affiliates in tax havens like Bermuda. Then they purchase reinsurance from these same affiliates. In this simple and legal way, foreign-based insurers are avoiding paying U.S. taxes altogether.
Is it fair? Well, would you think it was fair if your neighbor enjoyed receiving special tax treatment but you didn't? So why should foreign-owned companies, operating in the United States, get special tax treatment that our American-owned companies don't get to enjoy?
Our tax dollars pay for public schools, colleges and hospitals. They pay for our roads, bridges, police and fire protection. Our military, national defense and justice system--they, too, are paid for by our tax dollars, as are Medicare and Social Security. And when there's a national disaster like hurricanes, fires and/or floods? Yes, the rebuilding and recovery happen all thanks to our tax dollars.
Everybody wishes they didn't have to pay taxes, but we all understand that they are necessary for paying for the cost for running a country and enjoying the great way of life we as Americans get to enjoy every day.
Foreign-based, foreign-controlled insurance companies, however, would rather you and I foot the bill for all necessary tax revenue while they carry on unscathed, and with their pockets full to overflowing. They want special tax treatment American taxpayers and American businesses will never get.
That is, unless, we can get this injustice eliminated. That could happen and fairly soon, too, with the tax reform bill - titled the "Tax Cuts and Jobs Act" - which is currently in the House of Representatives. And while lawmakers have been discussing tax reform for quite a while, if there was ever a poster child for tax reform, this is it.
Here is how the system should work: If you have a company that is participating in, and prospering from, the U.S. market, you should be paying your taxes from those profits to the United States Treasury. It couldn't be clearer. It couldn't make more sense. And guess what? Foreign-based insurance companies will still want to do business in the United States - which is the world's largest reinsurance market.
Many legislators in the House (mostly republicans) have emphasized that if Congress and the White House do agree to cut taxes for both American businesses and American consumers, they need to find other streams of income to avoid increasing budget deficits. The Joint Tax Committee estimates that nearly $9 billion in additional revenue will be generated over the next 10 years if the Insurance Tax Haven Loophole is closed.
Regardless of whether you are in favor of the rationale behind the Tax Cuts and Jobs Act, it's time to get rid of this loophole and level the playing field for all insurance companies participating in the U.S. market. Competition can a good thing, but it must be fair. The rules have to be the same for everyone, just as they are in any competitive activity, such as a baseball game, a football game, or a poker tournament.
Fair competition and a level playing field is good for U.S. businesses, taxpayers, and economic growth. More economic growth means better wages for American workers, who will then have more disposable income with which to spend and bolster economic activity. Any economist will tell you that two-thirds of all economic activity in America is based on consumer spending. So, the more money Americans have in their pockets to spend, the higher the economic activity, and the faster our economy will grow and expand.
Two-thirds of Americans say they are "very frustrated" with tax loopholes used by corporations to avoid paying their fair share of taxes. It's time to listen to the American people when they speak so overwhelmingly with one voice.
Over the three decades that this loophole has been in existence, the share of U.S.-based insurers doing business in America has plummeted from 85 percent to 27 percent. It's easy to see why. With the profits of foreign-based insurers having increased (since they now pay little or no taxes), they turn around and use their profits to buy existing U.S-owned insurance companies. The result is an even higher percentage of insurers are that foreign-owned and foreign-controlled, and even fewer taxes paid to America.
It's a vicious cycle that leaves American businesses and American taxpayers holding the bag.
Closing unfair loopholes like the Insurance Tax Haven Loophole after 30 years of abuse by foreign companies isn't about keeping foreign companies from competing here. It isn't about protectionism or isolationism. It's about fairness. It's about justice. It's about time!