One of the ways that corporations manage to cut their federal income tax bills way, way below the statutory rate is by setting up reinsurance affiliates offshore. While some of these reinsurance affiliates may actually function as full-service reinsurance companies to many different customers, those truly taking on and diversifying risk, most are scams, in that they are just ways to offshore U.S. profits through premium payments for self-insurance.
Two bills now before Congress, H.R. 2054 and S.991, reintroduced recently by Rep. Richard Neal (D-MA), Rep. Bill Pascrell(D-NJ) and Sen. Robert Menendez (D-NJ), are intended to end this run around the US corporate tax laws, picking up a proposal from the President's FY2014 budget to deny tax deductions for certain reinsurance premiums paid to foreign-based affiliates of domestic insurers.
Naturally, the GOP-Big-Business-Friendly machine is up in arms about any bill that would take away this kind of tax subsidy for multinational corporations.
[Although the GOP professes to believe in a 'free market', that is demonstrably false, in that every preferential tax subsidy for Big Business is highly lobbied for, and at the same time, "reforms" (like further preferential capital gains rates or regressive consumption taxes) that would push the burden of supporting federal government programs that are immensely important for ordinary people are pushed.]
So GOP Governor Rick Scott of Florida has issued a letter to Congressman Vern Buchanan (R-FL), a member of the US House of RepresentativesWays and Means Committee (who had been involved in various lucrative real estate gambits that smacked of crony capitalism in the time before his elevation to congressman). Gov. Scott claims that legislation that gets rid of the loophole of deducting premiums paid to a corporation's own offshore (tax haven) subsidiary is just a terrible idea. Gee, it would increase costs and that would be "disastrous." He also cites a Brattle Group "study" that claims that insurance availability would decrease by 20%. He also makes various claims about the importance of reinsurance generally as part of the insurance market.
Scott's letter seems to mix up questions about general reinsurance versus the kind of reinsurance to offshore affiliates that the legislation is targeting. Reinsurance occurs when an insurance company seeks to diversity its risks by reinsuring part of them with another insurance company that acts as a reinsurer. Genuine reinsurance is a useful part of insurance, and the legislation doesn't outlaw reinsurance or add to the costs of reinsuring through bona fide third-party reinsurance companies. The legislation deals with offshoring of insurance premiums through affiliated reinsurers, quite a different thing, through which US corporations essentially convert US profits to offshore profits, reducing their US taxes correspondingly, by paying premiums (sometimes exaggeratedly high premiums, providing even greater tax avoidance) to their own subsidiaires located in offshore tax havens.
Yes, not getting to use the offshoring reinsurance scam to cut US corporate taxes would increase those companies' costs. But every time a US company reduces its own costs and increase its own profits through offshoring its profits to tax havens and thus avoiding US taxes, it is shifting the tax burden off onto ordinary Americans who can't/don't engage in such lucrative offshoring. Ordinary workers thus end up bearing an increased tax load to support those companies' lower tax burdens.
(Oh, and a bunch of reinsurers appear to have been involved in illegal trade with Iran, too. See article on NY regulators, below).
The US has prospered most when we have had a more equal society in which corporate entities have borne a greater share of the tax burden (resulting, if the incidence of tax falls mainly on shareholders as may be the case) in their shareholders, who are in the main members of the upper crust, paying a fairer share of the tax burden and relieving ordinary folk from having to take up too big a share.
It seems to me that we have reached a point where Americans have to decide what kind of society they want. If we want a highly unequal society in which children of the wealthy receive a prime education, go to the best colleges, are introduced through their wealthy parents to societal leaders who can open doors for them in whatever career they want while most everybody else finds themselves forced to opt for expensive online colleges, few connections, living from hand to mouth and hoping against hope to be able to satisfy basic needs, then we can just continue on the path we are already moving on. But if we are not satisfied with that kind of oligarchic society, we have to vote out the right-wingers who are pushing it and institute new policies, reviving labor laws to support workers, instituting a more progressive income tax, reforming the tax code to remove the many tax subsidies for Big Business (and especially those for Big Finance and Big Oil) and otherwise attempt to shift the focus of the economy to creating jobs for ordinary people. Revamping the reinsurance industry is one of the obvious reforms along the way to a more sustainable economy.