WASHINGTON – Lars Powell, Ian Adams and R.J. Lehmann, each of the R Street Institute, along with the Texas Public Policy Foundation (TPPF), released a new study entitled “Impact of a Border-Adjustment Tax on the Texas Insurance Market” that outlines the economic cost Texas might face if Congress adopts a border-adjustment tax (BAT) that does not follow the almost universal international practice of exempting financial services like reinsurance from similar taxes.
Reinsurance, or basically insurance for insurance companies, helps spread risk and lowers the cost of insurance to consumers. In Texas, reinsurance is especially important because it helps manage the risk for catastrophic events such as hurricanes, tornados, and hailstorms. Taxes increasing the cost of reinsurance will ultimately be passed on to consumers in their insurance premiums. The effect of taxing reinsurance with the BAT is projected to be $3.39 billion in higher property-casualty insurance premiums in Texas over the next decade.
“With Congress and the White House reportedly preparing to consider a BAT as part of an overall tax-reform package, it is important to underscore the deleterious effects the tax could have on citizens’ ability to secure insurance coverage for their homes, cars, and businesses,” R Street's authors wrote. “It’s important to bear in mind that, under the current system, insurance companies don’t just import reinsurance – they also export risk. Denying insurers the ability to engage in responsible risk transfer would mean concentrating those risks here on our shores.”
“Texas consumers would be harmed by a border-adjustment tax applied to reinsurance,” said Bill Peacock, Vice President of Research at TPPF. “Congress should lower all taxes, rather than target specific economic activity, in order to boost economic growth in Texas and the rest of the country.”
The authors of the study derived their conclusions by examining the impact a BAT system would have on the supply of international reinsurance and calculating the effects that changes in price and availability would have on the state’s insurance market and policyholders. Because property and casualty insurers that do business in Texas—as in other states exposed to major natural disasters—manage a large volume of risks through foreign reinsurers, the state would experience dramatically higher insurance premiums under a BAT system.
To read the full report, visit: http://txpo.li/2qlJ0tn
Bill Peacock is the vice president of research and the director of the Center for Economic Freedom at the Texas Public Policy Foundation.
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