[Congressional Record Volume 140, Number 68 (Thursday, May 26, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 26, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                RESTORE TAX FAIRNESS--CLOSE THE LOOPHOLE

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from California [Mr. Filner] is recognized for 5 minutes.
  Mr. FILNER. Mr. Speaker, I am introducing legislation today to amend 
the Internal Revenue Code of 1986 to clear a glaring tax loophole. My 
legislation will require mutual life insurance companies to pay their 
fair share of taxes. This legislation would only affect the 18 largest 
mutual life insurance companies that are now legally depriving this 
country of $1.5 to $2 billion every single year. Furthermore, my 
legislation will have no impact on small business as it purposely 
exempts small life insurance companies from this requirement. Mr. 
Speaker, I will include the full text of this bill, entitled the 
Insurance Tax Fairness Act of 1994, in the Record.
  I am very proud, Mr. Speaker, to announce that I am joined in this 
important legislation by my distinguished colleague from California, 
Howard L. Berman, Maxine Waters, Xavier Becerra, and George Brown; 
Jolene Unsoeld of Washington; Elizabeth Furse of Oregon; Cynthia 
McKinney of Georgia; Alcee Hastings of Florida; Eleanor Holmes Norton 
of Washington, DC; Mel Watt of North Carolina; Nydia Velazquez of New 
York; and Patsy Mink of Hawaii.
  It is an honor be joined by this distinguished group, and I know as 
more Members, on both sides of the aisle, have an opportunity to become 
familiar with this issue, they will want to join us in this effort. I 
welcome future cosponsors, and will be happy to provide any background 
material.
  I enjoyed the privilege to be associated during the early stages of 
my political career with the legendary Senator Hubert H. Humphrey. Many 
of the programs which play such an important role in American life 
today, such as the Women, Infants and Children nutrition program, can 
be traced to this great American folk hero. As one example, the WIC 
Program has literally saved the lives of millions of infants, and has 
saved billions of dollars by reducing future health care costs. But 
there are estimates that the program fails to reach nearly 3 million 
pregnant women, infants and children who would be eligible for the 
program but are not served because of budget restraints. We can go 
anywhere in America today and find praise for the WIC Program; we have 
the opportunity in this and subsequent sessions of Congress to provide 
the adequate funding necessary without raising a penny of taxes.
  How can I possibly explain to my constituents--and to the memory of 
Hubert Humphrey--that we cannot feed hungry children, provide the 
complete level of school breakfasts, fully fund a program such as WIC 
or help our cities provide emergency services while some companies are 
not paying their fair share of taxes?
  My legislation will bring $1.5 to $2 billion in additional revenue 
each year by replacing an existing section of a tax code that every 
expert who has looked at it--including expert witnesses before 
Congress--says is not working.
  My constituents did not send me to the 103d Congress to be a ``potted 
plant.'' In fact, we were sent here to make a difference, and not do 
things in the same old ways. That was our pledge, and this legislation 
is precisely about restoring tax fairness, closing a loophole, and not 
conducting business as usual.
  This legislation is about the ability of this Nation to tax all 
citizens and corporations equally, and making sure that Federal dollars 
are spent on programs that are truly in the national interest. The Ways 
and Means Committee asked the insurance industry to propose a 
replacement for Section 809 of the Internal Revenue Code in 1989, when 
it became obvious that the section was not generating the revenues 
intended when it was enacted in 1984. The mutual companies were 
supposed to come forward with recommendations. They have not done so. 
So the matter before us today is one of fairness and equity.
  Mr. Speaker, in introducing this legislation, I am reminded of the 
famous words of Hubert Humphrey: ``The moral test of government,'' he 
said, ``is how that government treats those who are in the dawn of 
life, those who are in the twilight of life, and those who are in the 
shadows of life.''
  In the final analysis, Mr. Speaker, that is what this legislation is 
all about--to raise the congressional score on this moral test. I urge 
its careful consideration through the congressional process.
  When I circulated by ``Dear Colleague'' letter, Mr. Speaker, I 
included a page entitled ``Close the Loophole: A Brief Explanation.'' I 
include the full text in the Record.

                Close the Loophole: A Brief Explanation

       Congress is preparing to give $2 billion to the mutual life 
     insurance industry in year 1995, even while proposing 
     cutbacks for some programs and considering tax increases to 
     fund other programs. Pleas for funds to feed hungry children, 
     protect children in poverty and provide services for others 
     are ignored.
       This ``gift'' is based on the failure of federal tax code 
     Section 809, first passed in 1984. The purpose of 809 was, 
     and is, to tax mutual life insurance companies as if they 
     were stock companies. Both corporate forms sell the same 
     often, identical products, and differ only in how they return 
     profits to their owners. Stock companies pay profits to 
     stockholders, mutual companies to their policy holders. 
     Section 809 proposes to impute a profit on mutual company 
     earnings similar to the earnings of stock companies.
       According to experts (including those used by the IRS), if 
     Section 809 had performed as expected, mutual life insurance 
     companies would now be paying $2 billion a year more in 
     federal taxes. The fact that 809 is not working was 
     acknowledged as long ago as 1988 when both the Treasury 
     Department and the General Accounting Office (GAO) began 
     studies of the problem in search of remedies. Both the 
     Treasury and the GAO reports in 1989 agree on these 
     conclusions: Section 809 has failed to generate the revenues 
     expected by Congress in 1984 and Congress should take 
     corrective action. Both reports suggested several options to 
     remedy the problem, but did not agree on a common solution. 
     Hearings were held in 1989, but no legislation emerged. 
     Instead, the life insurance industry was asked to develop a 
     proposal and bring it to Congress.
       That was five years ago. The failure of Section 809 could 
     be considered a technical matter in 1989. Five years later 
     the matter has become a moral and ethical issue. The refusal 
     of the insurance industry to suggest a remedy has to be 
     considered an affront to Congress, a matter of contempt, 
     conveying a belief that the industry can block legislative 
     action to protect the mutual life insurance industry annual 
     $2 billion loophole.
       Congress has many difficult, hard choices to make. The loss 
     of $2 billion in annual revenues makes the choices between 
     military spending, welfare reform, health care, social 
     services, veterans programs and hunger even more difficult 
     than need be. Closing the 809 loophole is an easy choice--but 
     a difficult political decision. The legislation to close the 
     loophole is a message to the insurance industry that the 
     special interest gravy train has run out of tracks, and a 
     commitment to hungry children that Congress has its 
     priorities straight. When nearly one of every four children 
     live in poverty households today, Congress has an easy choice 
     to make, and can do no less.
                                  ____


                                 H.R.--

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Insurance Tax Fairness Act 
     of 1994''.

     SEC. 2. REVISION OF LIMITATION ON DEDUCTION OF POLICYHOLDER 
                   DIVIDENDS BY MUTUAL LIFE INSURANCE COMPANIES.

       (a) In General.--Paragraph (2) of section 808(c) of the 
     Internal Revenue Code of 1986 (relating to reduction in case 
     of mutual companies) is amended to read as follows:
       ``(2) Limitation in case of mutual companies.--
       ``(A) In general.--In the case of a mutual life insurance 
     company, the amount allowed as a deduction under paragraph 
     (1) for any taxable year shall not exceed the lesser of--
       ``(i) 90 percent of the policyholder dividends paid or 
     accrued by such company during such taxable year, or
       ``(ii) 30 percent of the life insurance company taxable 
     income of such company for such taxable year (determined 
     without regard to any deduction for policyholder dividends).

     In no event shall the limitation under this subparagraph for 
     any taxable year be less than $35,000,000.
       ``(B) Treatment of stock companies owned by mutual life 
     insurance companies.--Solely for purposes of this paragraph, 
     a stock life insurance company shall be treated as a mutual 
     life insurance company if stock possessing--
       ``(i) at least 80 percent of the total combined voting 
     power of all classes of stock of such stock life insurance 
     company entitled to vote, or
       ``(ii) at least 80 percent of the total value of shares of 
     all classes of stock of such stock life insurance company,

     is owned at any time during the calendar year directly (or 
     through the application of section 318) by one or more mutual 
     life insurance companies).''
       (b) Repeal of Section 809.--
       (1) Section 809 of such Code is hereby repealed.
       (2) Subparagraph (B) of section 807(a)(2) of such Code is 
     amended to read as follows:
       ``(B) the amount of the policyholders' share of tax-exempt 
     interest,''.
       (3) Subparagraph (B) of section 807(b)(1) of such Code is 
     amended to read as follows:
       ``(B) the amount of the policyholders' share of tax-exempt 
     interest,''.
       (4) Subparagraph (A) of section 812(b)(3) of such Code is 
     amended by striking ``sections 808 and 809'' and inserting 
     ``section 808''.
       (5) Subsection (c) of section 817 of such Code is amended 
     by striking ``(other than section 809)''.
       (6) Subsection (c) of section 842 of such Code is amended 
     by striking paragraph (3) and by redesignating paragraph (4) 
     as paragraph (3).
       (c) Effective Date.--
       (1) In general..--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 1993.
       (2) Recomputation under section 809 (f) not affected.--The 
     amendments made by this section shall not affect the 
     application of section 809(f) of the Internal Revenue Code of 
     1986 (as in effect before its repeal by subsection (b)) in 
     respect of any taxable year beginning before January 1, 1994.
       (3) Limitation on loss carrybacks.--In the case of a life 
     insurance company subject to the limitation under section 
     808(b)(2) of such Code, no capital loss arising in a taxable 
     year beginning after December 31, 1993, may be carried to a 
     taxable year beginning before January 1, 1994.

     SEC. 3. SMALL LIFE INSURANCE COMPANIES EXEMPT FROM REQUIRED 
                   CAPITALIZATION OF CERTAIN POLICY ACQUISITION 
                   EXPENSES.

       Section 848 of the Internal Revenue Code of 1986 (relating 
     to capitalization of certain policy acquisition expenses) is 
     amended by adding at the end the following new subsection:
       ``(k) Exemption for Small Life Insurance Companies.--This 
     section shall not require any small life insurance company 
     (as defined in section 806) to capitalize any specified 
     policy acquisition expenses for any taxable year beginning 
     after December 31, 1993.''

     SEC. 4. SENSE OF CONGRESS RELATING TO USE OF INCREASED 
                   REVENUES.

       It is the sense of the Congress that any increase in 
     revenues to the Treasury resulting from the amendments made 
     by this Act shall be dedicated to the funding of programs 
     benefiting the nutrition, early education, housing, and 
     family support of the Nation's children.

                          ____________________