By Silla Brush - 07/15/10 12:12 AM EDT
Congress is unlikely to move quickly on controversial tax legislation that has sparked a major lobbying battle between U.S. and foreign-owned insurers.
Rep. Richard Neal (D-Mass.) has pushed hard in recent years to close what he considers a tax loophole that favors foreign-owned insurers over domestic firms. Neal is targeting the so-called “Bermuda loophole” that he says allows insurers to avoid paying U.S. taxes by basing their companies elsewhere.
The legislation has divided the insurance industry and received strong criticism from Republicans and some Democrats. The Obama administration supports a similar, but significantly narrower, version of the policy.
Lawmakers on the House Ways and Means Committee debated the issue Wednesday, but the panel appears a long way away from voting on the measure. Senators have yet to introduce companion legislation and have not held any hearings on the matter recently.
Neal said it is unlikely the legislation would advance quickly.
“It’s just very difficult to say, given the legislative calendar. I don’t think there is going to be a lot of opportunity here in the next few weeks, that’s for sure, to address some of this,” he said.
Although they have similar aims, the proposals from Neal and the Obama administration would raise vastly different amounts of tax revenue. The administration proposal would generate $2.3 billion in receipts, while the Neal bill would raise $16.9 billion, according to the nonpartisan Joint Committee on Taxation.
The Neal measure would capture more reinsurance premiums sent to foreign affiliates than the administration’s policy. Neal uses a broader industry average threshold in his bill for the amount of premiums affected; the administration has a fixed threshold.
The Neal bill also applies to more types of reinsurance business than the administration’s proposal.
The proposals came under heavy criticism from Republicans who are worried that they would cost jobs, raise premiums and drive business away from the United States.
Rep. Kendrick Meek (D-Fla.) was critical of the Neal bill because of its potential impact on the Gulf Coast, home to the many of the costliest insurance losses in recent decades.
“I do have great concerns about this piece of legislation,” Meek said. “This bill would bring about a great deal of difficulty as it relates to the cost of insurance.”
The legislation has spawned a multimillion-dollar lobbying battle between U.S. and foreign insurers. Domestic insurers, led by W.R. Berkley Corp. and Chubb Corp., set up a Coalition for a Domestic Insurance Industry that strongly supports Neal’s bill. The coalition has spent nearly $1.5 million lobbying since 2007, according to congressional records.
Foreign insurers, trade groups and others opposed to the Neal bill have set up their own Coalition for Competitive Insurance Rates. Large insurers, including Swiss Re and ACE Group of Companies, are opposed to Neal’s legislation. The Organization for International Investment and the Association of Bermuda Insurers and Reinsurers also oppose the measure.
Opponents of the bill have spent millions of dollars on federal lobbying.
“At the end of the day, we are foreign. It’s easy to demagogue us,” said Alex Kaplan, vice president at Swiss Re. “What people fail to acknowledge is you want us here. We employ thousands of Americans. We are here to stay.”