Foreign-owned insurers don’t enjoy tax loopholes

In their article, “Time to Close the Tax Haven Loophole,” (The Hill, Online Edition, April 30), eight insurance company executives write that those who oppose a special tax increase on non-U.S. reinsurance companies are indulging in “false rhetoric — scare tactics designed to deflect attention from the true issue.”

That’s just what these executives are engaging in, plus paranoid fantasies.

Here’s “the true issue.”  In the midst of a worldwide recession, the last thing the U.S. economy needs is a punitive tax on an essential segment of the insurance industry. 

{mosads}The U.S. has the world’s largest economy — and many densely populated and heavily developed regions at risk of disasters, from the earthquake-prone San Francisco Bay Area to the hurricane-prone Gulf and Atlantic Coasts. American insurers need to spread all this risk around the widest possible area. That is why they purchase about two-thirds of their property catastrophe reinsurance — and approximately half of all their $100 billion in reinsurance — from foreign reinsurers. 

These insurance executives contend that this complex marketplace can be explained by “foreign-owned insurance companies … stripping their earnings into overseas tax havens.”  

But the fact is: Foreign-owned insurers don’t enjoy special U.S. tax loopholes. Their U.S. subsidiaries are subject to the same income tax laws as their U.S.-based competitors. If foreign-owned companies obtain reinsurance from companies with which they’re affiliated, they face the same tax consequences as if they reinsured with unaffiliated reinsurers that are based in the U.S. 

 “Earnings stripping,” is also a fantasy. Unlike the debt transactions targeted by the earnings stripping rules of current law, an affiliate reinsurance transaction involves a U.S. subsidiary’s core business. 

They assure us the proposed tax doesn’t violate U.S. tax treaties with other countries. But it does. Listen to Gary Clyde Hufbauer, a former Treasury Department official under Presidents Gerald Ford and Jimmy Carter. In his recent report, Protection by Stealth: Using the Tax Law to Discriminate against Foreign Insurance Companies, he warns that if this tax is enacted, European countries will bring a case in the World Trade Organization, seek redress under U.S. tax treaties, and consider retaliatory legislation that would hurt U.S.-owned insurance companies.

But they get one thing right, sort of. They quote me as saying that the profits of non-U.S. reinsurers are “going back to shareholders.” Well, so do the profits of any company, including their own. But the advantages of a competitive insurance market benefits consumers. These advantages must not be destroyed by this punitive and protectionist tax increase. 

From Bradley L. Kading, President and Executive Director, Association of Bermuda Insurers and Reinsurers, Washington
 
Fuel market distortions hurt consumers at pump

Ethanol Policy Critic has questions for President Obama?

Mr. President, how do you allow 113 octane ethanol futures to trade at $1.57 per gallon on April 27, while 85 octane gasoline futures traded for $2.33 per gallon? U.S. consumers pay dearly for every point of octane. Can you have Congress include this in their derivative hearings?

These market distortions have dropped ethanol profitability and production, leading to lower corn prices for U.S. farmers. All while gas prices and petroleum profits soar.

So, Mr. President, it’s time to put 10 percent ethanol in all gasoline — just like we have done in Minnesota for years — and address rising gasoline prices with homegrown ethanol.

From Alan Roebke, Alexandria, Minn.