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1 Alan Cole, Incorrectly Defining Business Income: The Proposal to Eliminate the Deductibility of Foreign Reinsurance Premiums 1 (2015)

handle is hein.taxfoundation/incdbusin0001 and id is 1 raw text is: TA S FOUNDATION FISCAL FACT Feb. 2015 No. 452 Incorrectly Defining Business Income: The Proposal to Eliminate the Deductibility of Foreign Reinsurance Premiums By Alan Cole Economist Key Findings Several recent tax proposals, including the White House's 2015 budget, have included a provision to eliminate deductions for reinsurance premiums paid to foreign subsidiaries. These deductions represent legitimate business expenses and legitimate risk-spreading. Reinsurance transactions are already under heavy oversight by the IRS, and require appropriate pricing for premiums. Dynamic modeling of the tax provision shows that it increases the cost of capital and reduces GDP by $1.35 billion while only increasing revenues by $440 million annually. In total, for every additional dollar collected by the government over the long term, the private sector as a whole would lose $4.07. This is an inefficient growth tradeoff; far better revenue raisers are possible. Arguments over foreign reinsurance premiums highlight the problems with the U.S. corporate tax code more generally. Congress should not reform the corporate tax code on an industry-by- industry basis. Instead, reform should be make the corporate tax code more neutral and more competitive.

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