Buried deep in the recesses of President Obama’s budget are two items that could have vast and potentially devastating consequences for millions of Americans involved with dozens of different risk markets. Though their names are more likely to induce slumber than Tea Party rage, these proposals serve as important reminders of the ways that misguided government policies can skew the economy and hurt consumers.
The first item has a moniker only a bureaucrat could love: the deduction disallowance for nontaxed reinsurance premiums paid to foreign affiliates. Dressed up by its proponents with populist rhetoric about how it will close “loopholes,” the proposal would slap a large protectionist tariff on dealings with just about every global insurance company.
Since insurance markets tend to rely on these global players to handle mammoth risks like hurricanes, earthquakes, and plane crashes, the consequences of chasing them from the U.S. market could be devastating. A study from the Cambridge, Mass. based Brattle Group projects the tax would cost consumers $140 billion over 10 years in increased insurance costs, while raising only a tiny fraction of that total in new tax revenues.
The second all-but-hidden proposal, something called “the Overseas Contractors Compensation Act,” proposes that the U.S. Department of Labor create its own government-run workers’ compensation insurer to cover on-the-job injuries suffered by U.S. overseas contractors—coverage that’s currently provided mostly by private companies.
While the White House promises this will provide as-yet-unquantified savings over the current system, when it comes to running insurance programs, the government’s record has been pretty poor. Whether it’s the $30 billion debt of the National Flood Insurance Program or Medicare’s $1 trillion-plus in long-term deficits, the feds have almost always over-promised, underpriced, and left taxpayers responsible for a big bailout. That’s not to mention the administrative problems that inevitably would result from transferring an international program from global insurers to a purely domestic agency, where most desk phones can’t even make overseas calls.
While these two proposals, even taken together, aren’t the equivalent of the president’s massive, deeply problematic health care law, they show the true colors of an administration that believes it can always handle risks better than the private sector.