by Gary Clyde Hufbauer, Peterson Institute for International Economics
The severe economic damage done by the global crisis of 2007–09 has reenergized calls to protect domestic products and producers in the United States. One example is a proposal to discriminate against foreign-owned insurance companies, using the tax code. The Neal bill (HR 3424), named after Congressman Richard Neal (D-MA), proposes to tax foreign-owned insurance companies doing business in the United States more heavily than US-owned insurance companies doing exactly the same business in the United States. If this bill or something like it is enacted, cautions Hufbauer, European countries are almost certain to bring a case against the United States in the World Trade Organization (WTO) and seek redress under US income tax treaties. Some European countries might consider tit-for-tat retaliatory legislation that would hurt US-owned insurance companies.
While legal and retaliatory battles are waged, some foreign-owned insurance companies might reconsider their presence in the US insurance market—a role that has greatly benefited the US households and firms that suffered catastrophic losses in the wake of 9/11 and Hurricane Katrina. Equally important, it is a bad idea to deny US nonfinancial companies the benefit of competition between US-owned and foreign-owned firms in an industry that collects hundreds of billions of dollars of premiums annually. Tax abuse in the insurance market, if it exists, can be addressed without discriminating against foreign-owned companies.
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Policy Brief 11-16: US Tax Discrimination Against Large Corporations Should Be Discarded October 2011
Policy Brief 11-2: Corporate Tax Reform for a New Century April 2011
Policy Brief 10-10: Higher Taxes on Multinationals Would Hurt US Workers and Exports May 2010
Congressional Testimony: Tax Reform and the Tax Treatment of Debt and Equity July 13, 2011
Book: US Taxation of Foreign Income October 2007
Book: Reforming the US Corporate Tax September 2005
Op-ed: America Badly Needs a Value Added Tax April 21, 2005
Paper: Tax Policy in a Global Economy Revised February 2000