TALLAHASSEE, Fla. – The latest report by Florida TaxWatch, the state’s independent, nonpartisan, nonprofit taxpayer research institute & government watchdog, finds that applying a national border-adjusted tax to reinsurance transactions would result in significantly increased property and casualty insurance premiums for Floridians and negatively impact the state economy and job market.
The United States House of Representatives’ comprehensive tax reform plan, known as the Blueprint, includes a proposal to make the federal corporate income tax “border-adjustable.” If the tax is applied to reinsurance transactions, then it would increase the cost of reinsurance, which would be passed onto consumers. Since property insurers rely heavily on foreign reinsurance to diversify low-frequency-high-severity natural catastrophes, such as hurricanes, states most vulnerable to catastrophic losses—such as Florida—would be most impacted by applying a border-adjusted tax to reinsurance.
“While other countries around the world use tax schemes similar to the border-adjustment proposal, no developed market trading partner of the US applies it to reinsurance transactions. Applying this proposed border-adjusted tax to reinsurance transactions would have a disproportionate and negative effect on Florida,” said Florida TaxWatch President and CEO Dominic M. Calabro. “Application of the tax would dramatically increase costs for insurance companies and consumers, hurt our state’s economic competitiveness and kill tens of thousands of jobs.”
Florida TaxWatch estimates that if reinsurance coverage were classified as an import and therefore subject to a 20 percent border-adjusted tax, the tax would increase the cost of commercial and residential property insurance in Florida up to $2.6 billion annually and that homeowners would see annual increases between 7.9 percent and 12.9 percent in insurance premiums. Over time, if reinsurer portfolios were to fully shift to the U.S. in response to such a tax increase, the cost of property insurance would increase by up to $5.5 billion annually (including policyholder premium increases of up to $910 per year), which would result in the loss of up to 163,000 jobs in Florida, and reduced economic activity of up to $10.5 billion.
“The long-term damage to the state economy by the application of such a tax on reinsurance would put Florida behind for years,” said Associated Industries of Florida President and CEO Tom Feeney. “A decrease in earnings would propel the cost of living higher, while increased costs for hurricane-risk insurance would hamper Florida’s economic growth through declines in business investment in the state. Due to Florida’s susceptibility to major storms, it is crucial that insurance is affordable for businesses and residents.”
“If the border-adjusted tax is imposed on reinsurance, Florida taxpayers will be hurt where they can’t afford to be hit – their wallet,” said Florida Consumer Action Network Deputy Director Bill Newton. “We hope that policymakers fully consider the impact of applying a border-adjustment tax on reinsurance transactions on Floridians. Our residents should not suffer through cost and tax increases just as the economy is generating significant growth.”
“A border-adjusted tax on reinsurance would have a significant impact on the Florida homeowners market, resulting in significant policyholder price increases. There is a level playing field for financial services now, but restricting the ability of Florida insurers to export risk would cause them to offer less coverage, particularly for our unique exposures to hurricanes and floods,” said Florida Insurance Council President Cecil Pearce. “Higher costs and less coverage would make it more expensive for Floridians to purchase the property insurance they need to protect themselves from disasters.”
Read the full report here