Tax May Unjustly Punish Insurance Industry
It's easy to point fingers when it comes to the recent recession.
Some people may place the blame on real estate agents who shouldn't have made mortgage loans. Others will point to the people who took them. Many consumers will be inclined to look from Main Street to Wall Street. And they have every right to do so.
Those who are responsible for a significant economic setback should be held accountable for their actions. In some cases this means subjecting their activities to increased federal regulation or fees. Both financial reform bills create a new watchdog agency aimed at protecting consumers from deceptive lending. An Office of National Insurance has been proposed in the Senate bill as its insurance counterpart.
These efforts are commendable and may very well prevent Americans from funding future billion-dollar bailouts.
But it's important that such regulations and fees are not misdirected. The Senate's financial reform bill includes a Financial Crisis Responsibility Fee aimed at firms with more than $50 billion in assets. This "bank fee" may discourage companies from becoming "too big to fail" - one of the symptoms of the previous economic crisis.
"If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers," President Barack Obama said earlier this year.
His logic is sound, but may have some unintended victims: the life insurance industry. Many of these companies will be subject to responsibility fees because of their size but could hardly be held responsible for the recent recession.
Patrick Baird, the chairman of a major insurance company, recently voiced this opinion on behalf of the American Council of Life Insurers before the Senate Committee of Financial Affairs. While he conceded that one multi-faceted business that sold insurance products played a significant role in the collapse, Baird explained that all of the nation's businesses were at least partly responsible.
Plus, life insurance companies cannot legally partake in the types of business that are specifically being targeted by the tax, according to Baird.
"Since insurers are prohibited by state law from engaging in excess or risky leveraging, we do not believe this is justification to impose a tax on our industry," he said.
Bailing out big businesses is an expensive undertaking that consumers should not be forced to fund. However, it is equally irresponsible to punish those that did not contribute to the crises Americans are aiming to recover from.
