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HOW
IMPORTANT IS THE INSURANCE
PREMIUM
TAX CUT?
The
insurance industry is a critical component of our economy,
providing over 40,000 jobs in Iowa. For many years, Iowa has been
a national leader in the insurance industry. Iowa is becoming
increasingly less competitive, however, by maintaining a higher
premium tax than seventeen other states.
Iowa
insurance companies currently pay a two percent tax on all
insurance premiums they collect. Seventeen other states have a
lower premium tax, but charge Iowa-based companies a retaliatory
tax, equal to Iowa’s two percent tax. For example, in Nebraska,
a Nebraska-based insurance company pays a one percent premium tax,
but an Iowa-based insurance company pays a one percent premium
tax, plus an additional one percent retaliatory tax. The
retaliatory tax serves as a disincentive for insurance companies
to remain based in states like Iowa that maintain a two percent
premium tax.
In
December, AFLAC Inc., the number one supplemental health insurer
in the U.S., moved its base from Georgia to Nebraska.
AFLAC specifically cited the premium tax rate and the cost
of retaliatory taxes for the move. If Iowa insurance companies
begin to move to Nebraska, or other states with a lower premium
tax, because Iowa’s premium tax rates are not competitive, the
effect would devastate Iowa’s economy.
If
only one-third of the insurance industry were to leave Iowa,
beginning in calendar year 2003, Iowa would lose approximately
12,900 insurance jobs over a ten-year period and the negative
fiscal impact would increase greatly each year. The estimated
negative fiscal impact to state and local governments begins with
an estimated $20.4 million loss in 2003 and climaxes at an
estimated $85.5 million loss by 2012.
Lowering
the tax would provide for additional economic activity in Iowa by
encouraging expansion of in-state employment by our existing
domestic insurers and relocation of new insurance companies
employment. Ernst & Young estimate that reduction in the
life/health insurance premiums tax rate by 2006, when fully phased
in, will generate 3,540 new jobs in Iowa and will add $206 million
annually to state personal income. (Source: Economic and
Fiscal Impacts of Reduction the Iowa Life & Health Insurance
Premium Tax Rate, by Ernst &Young LLP, 2002)
Ernst
& Young has also examined the economic benefits of reducing
the premium tax on property/casualty premiums by 2006. They
estimate that the reduction in the insurance premium tax rate,
when fully phased in, will generate 2,060 new jobs in Iowa. The
total new jobs will add $112.8 million annually to state personal
income. (Source: Economic and Fiscal Impacts of Reduction the
Iowa Property & Casualty Insurance Premium Tax Rate by Ernst
& Young LLP, 2002)
On
Wednesday, April 10, the House voted in favor of phasing the
insurance premium tax down to one percent by 2006.
AMERICA
CELEBRATES
TAX FREEDOM DAY
America’s
Tax Freedom Day will arrive on the 117th day of 2002
– Saturday, April 27. This
is the day that Americans have finally
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earned
enough to money to pay off their total tax bill for the year.
All income that’s officially called income by the
government is counted, along with taxes at all levels of government
-- whether levied by Uncle Sam or state and local governments.
The
result is a nationwide Tax Freedom Day and a separate Tax Freedom
Day for each state. Tax
Freedom Day in 2002 is two days earlier than in 2001, and four days
earlier than in 2000.
Thankfully,
two factors have combined to lessen the load that the average
American taxpayer carries: federal tax reductions and a slower
economy. Federal tax cuts in 2001 and 2002 lowered this year’s
average federal tax burden, and the recession in 2001 -- followed by
slow growth in subsequent months -- arrested the growth of tax
collections at all levels.
IOWA’S
TAX FREEDOM DAY
The
total tax burden by residents of different states varies
considerably. This
occurs not only because residents of different states pay different
amounts of state and local taxes, but also because they pay
dissimilar federal taxes.
Iowa
currently ranks at 32 in the nation for their State Tax Freedom Day.
The average Iowan’s per capita income is $28,758, with a tax
burden of $8,801 or 30.6%. On
average, Iowans will work 111 days -- until April 21st --
to earn enough income to pay their taxes.
HOUSE
PASSES STREAMLINED SALES TAX
On
Thursday, April 11, 2002, the House passed SF 2321. This bill – presented by Rep. Jamie Van Fossen -- deals
with the state sales and use taxes by requiring the Department of
Revenue and Finance (DORF) to begin collecting data concerning the
extent of electronic commerce within Iowa and the net gains or
losses in tax revenues as a result of electronic commerce.
Senate
File 2321 also strikes the repeal of current law that provides for
the sales tax of a sale of tangible personal property does not
occur if the transaction is delivered digitally, electronically, or
utilizing cable, or by radio waves, microwaves, or fiber optics.
And, under the use tax, tangible personal property does not
include any substance delivered digitally, electronically, or
utilizing cable, or by radio waves, microwaves, or fiber optics.
Rep.
Van Fossen’s bill establishes a committee of delegates that will
enter into multi-state discussions on behalf of Iowa on the question
of simplifying and modernizing the sales and use tax.
Ways
& Means Update
Bills
Passed Out Of The Ways & Means
Committee
This Week:
HSB
721 Relating to the administration of tax and related
laws by
the Dept. of Revenue and Finance, as well as state individual
income, corporate income, sales and use, property, fuel and
inheritance taxes.
SF
2310 Relating to the requirements for receiving property
tax exemptions for open prairies and wildlife habitats.
SF
2320 Relating to the assessment of court fees by the
clerk of the district court.
SF
2321
Relating to sales and use tax collections on electronic commerce.
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