[Congressional Record Volume 146, Number 114 (Friday, September 22, 2000)]
[Senate]
[Page S9036]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAMS:
  S. 3099. A bill to amend the Internal Revenue Code of 1986 to clarify 
the exemption from tax for small property and casualty insurance 
companies, and for other purposes; to the Committee on Finance.


          Small Property and Casualty Insurance Exemption Act

  Mr. GRAMS. Mr. President, I rise to introduce a bill to clarify the 
tax exemption status for small property and casualty insurance 
companies. These small companies are vitally important to provide 
needed services for our rural and farming communities.
  Under current law, an insurance company with up to $350,000 in 
premium is tax-exempt. In addition, companies with premiums that exceed 
$350,000 but do not exceed $1,200,000 are allowed to elect to be taxed 
on their net investment income.
  Investment income or assets are not considered when determining 
qualification for either tax-exempt status or investment income 
taxation. These companies are allowed to elect to be taxed on their net 
investment income.
  Early this year, President proposed in his FY 2001 budget to modify 
this calculation to include investment and other types of income. The 
proposal would also change the tax law to allow companies with premiums 
below $350,000 to elect to be taxed on their net investment income.
  By including investment income into the calculation, it is the intent 
of the administration to prohibit foreign companies and other large 
insurers from sheltering income from taxes.
  However, by including investment into the calculation, the intended 
beneficiaries, small property and casualty insurance companies, will 
not be able to qualify for the exemption defeating the intent of 
Congress and purpose for the provision.
  Mr. President, since 1921, small insurance companies have been exempt 
from federal taxation so that all their financial resources could be 
used for claims paying.
  It has been the public policy goal to maintain small, rural, farm-
oriented insurers so that all Americans would have access to coverage 
at a reasonable cost.
  While the administration's goal of closing the loophole is admirable, 
the current proposal would only serve to harm the small U.S. farm 
insurance company that the provision is there to protect.
  My legislation would close the loophole by limiting the provision to 
only those companies that are directly owned by their policyholders and 
the company operates in only one state.
  In addition, the legislation would increase the tax exemption level 
from $350,000 to $531,000, indexed for inflation every year thereafter, 
and it would increase the investment income election from $1.2 million 
to $1.8 million, indexed for inflation every year thereafter.
  The last time these levels were increased was 1986. Inflation has 
eroded the levels to the point of being irrelevant. The increased 
levels were calculated by using the CPI to adjust the levels for 
inflation.
  Mr. President, by making these changes we can ensure that our rural 
and farming communities will continue to receive the needed insurance 
services. I urge my colleagues to support this legislation.

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