By Silla Brush - 03/23/10 11:09 PM EDT
Domestic and foreign insurers are dueling over a tax measure for which Rep. Richard Neal (D-Mass.) is looking to gather congressional support.
Neal, a powerful member of the House Ways and Means Committee, is hosting a meeting Wednesday with lawmakers and senior executives at domestic insurers who argue current law allows foreign-based firms to escape U.S. taxes. Opponents say Neal’s measure discriminates against legitimate foreign-owned businesses and fails to go after real tax cheats.
The administration’s version would raise $519 million in tax revenue between 2011 and 2020, but supporters of Neal’s bill argue much more money could be at stake.
The Neal bill would limit insurers’ ability to receive U.S. tax deductions on some reinsurance premiums they send to foreign-based affiliates.
The bill targets the so-called “Bermuda loophole,” which Neal argues allows insurance companies to avoid paying taxes in the United States by basing their operations in countries with much lower tax rates.
“I believe prompt passage of my legislation is essential to maintain competitive balance between domestic and foreign insurers and to preserve the U.S. tax base. We need to take steps now before it is too late,” Neal wrote in a letter to lawmakers ahead of the Wednesday meeting.
The issue is highly controversial in the insurance industry, and Neal has yet to win co-sponsors for the bill. Senate Finance Committee Chairman Max Baucus (D-Mont.) in 2008 circulated a discussion draft of similar tax legislation, but he has yet to move forward.
The Neal legislation has prompted a major lobbying battle between domestic and foreign-based insurers. Millions of dollars have been spent lobbying by interests on each side of the debate, even though House or Senate action is far from certain.
The domestic insurers have formed the Coalition for a Domestic Insurance Industry; opponents have a competing Coalition for Competitive Insurance Rates.
Neal is holding the Wednesday meeting with senior executives at three U.S.-based insurers: W.R. Berkley Corp., Chubb Corp. and MBIA.
William Berkley, chairman and CEO of W.R. Berkley, has been the most vocal supporter of the Neal bill and told The Hill in February that he did not believe the president’s proposal was strong enough.
Opponents of the bill include Swiss Re, the Association of Bermuda Insurers & Reinsurers and the Organization for International Investment(OFII), among others.
“It’s very discriminatory,” said Nancy McLernon, president and CEO of OFII. “It upsets our companies, from our auto companies to grocery store companies to financial firms. It’s just really across the board.”
The bill’s opponents argue the tax would hurt the availability of insurance and reinsurance in the United States, particularly in areas that are prone to major natural disasters such as hurricanes.
Recent comments from some supporters of the bill also suggest there are concerns about how the legislation is crafted.
Liberty Mutual, a large Boston-based insurer, is listed as a supporter of the coalition of domestic insurers. But Ted Kelly, Liberty Mutual’s CEO, told the Bermuda newspaper The Royal Gazette that a change in tax policy could have “unintended consequences.”
The company declined to comment further on Monday.