Insurers could face more tax liabilities under the Biden plan

(Source: S&P Global Market Intelligence) The effective corporate tax rate for select U.S. insurance insurers. (Source: S&P Global Market Intelligence)

Insurance companies could face higher tax liabilities in the future if former Vice President Joe Biden wins the upcoming presidential election and his proposed changes to corporate tax structure are passed by Congress, according to an analysis by S&P Global Market Intelligence.

The Democratic presidential candidate’s tax plan calls for raising the corporate tax rate to 28%, from the 21% rate set by the Republican tax reform in 2017, and doubling the tax rate from 10.5% to 21% on the global intangible low tax income, or GILTI, earned by foreign subsidiaries of U.S. companies.

A third element of the plan is to impose a minimum tax rate of 15% on book income for companies with annual net income of more than $100 million. The IRS said: the minimum tax would be an alternative tax, with companies paying either the minimum or their normal corporate tax, whichever is higher.

On the face of it, the S&P Global analysis concludes that insurers would be looking at higher tax liabilities. The analysis, which was limited to US-based insurance insurers in select industries trading on the NYSE or Nasdaq, shows that on a pro rata basis, the minimum tax would have added a combined $703.5 million to the tax bills of four major companies. life insurance. insurers if the plan was in effect in 2019.

Based on a strict 15% tax rate applied to 2019 net income, Voya Financial Inc. have seen an increase of $289 million, CNO Financial Group Inc. had an increase of $176.3 million, MetLife Inc. another $133.3 million, and Lincoln National Corp. would have experienced a $104.9 million increase.

Phil Jacobs, a US insurance tax industry director for KPMG, said the impact of such a tax on insurers is unknown because Biden’s plan does not specify how book revenues would be determined. He said businesses will struggle to determine which tax is higher for them until that is figured out.

“Insurance companies have really significant timing differences between book income and taxable income,” Jacobs said in an interview. “So this is going to be another case where we have to model to figure out which of those rates will be higher.”

(Source: S&P Global Market Intelligence)

Overall, Biden’s plan has a lot of ideas, but not so many details. Ian Boccaccio, a global income tax leader for Ryan LLC, said the plan isn’t fully fleshed out and is more of a “high-level directional signal” indicating where Biden wants to go, which is away from business. tax cuts what President Donald Trump advocated.

“You can argue on both sides that it was good or bad for the economy, but the bottom line is this goes back to a higher rate,” Boccaccio said in an interview.

The lower rate may have been beneficial to other companies, but Jacobs said it wasn’t for insurers because they “got some specific rate increases…that were part of that bill.” He said there were revenue boosters he calls “pay-fors” in Republican tax law that included changes to how acquisition costs are capitalized and how reserves are calculated.

Jacobs said those changes helped pay the current 21% corporate tax rate, but also had the overall effect of higher US taxes on insurers. He said the industry could get “whiplash” as the rate goes from 21% to 28%, and should model for the effects of the higher rate, but with the pay hefty included to see where they are relative to. pre-tax 2017 law – sometimes referred to as the Tax Cuts and Jobs Act, or TCJA — when the rate was 35%.

“If you go back to 2016 or 2017, before the TCJA, you had a 35% rate, but you didn’t have these fees,” Jacobs said. “The interesting debate, which is of course company specific, is when you end up with a 28% rate, but these fees from the TCJA are still there, are companies better off? Are they worse off than before TCJA? I think that’s an interesting question.”

Tom Jacobs is a reporter, US Insurance, and Jason Woleben is a research analyst at S&P Global Market Intelligence.

This analysis was first published by S&P Global Market Information and is republished here with permission.


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