- - Tuesday, November 7, 2017


Donald Trump’s signature promise as he ran for President was he would drain the swamp. There is no greater symbol of the swamp that needs to be drained than the tax code of the United States.

Actually, calling it the tax code of the United States is a misnomer. It is a tax code inflicted upon America, by lobbyists and special interests who have no clue as to what they are doing nor do they have any great care about the outcome of their efforts. 

The tax code should have one simple purpose: fund the operation of government.

But no, our tax code is a nightmare, drafted by special interests with an end goal of having the government decide winners and losers.

Republicans in Congress recently unveiled their tax reform plan.  They waited until the last minute to reveal it for one major reason. As soon as they revealed it, lobbyists went to work trying to protect their special provisions in the tax code.

To call the tax code a mess is an understatement. Inside that byzantine labyrinth of laws are bizarre code sections that only hurt Americans.   One of those insane sections is a part of the current tax code that allows foreign based insurance companies to use something called, “affiliate reinsurance.”  What this means, in plain, non-tax lawyer English is that a foreign insurance company can write policies in America, then take that money, send it to a foreign affiliate company and not have to pay taxes on that income in the United States.

That gives foreign insurance companies a huge advantage over American insurance companies. Whether Congress meant to or not, it chose winners and losers in the insurance business.  This particular tax loophole was created thirty years ago and if it was the intent of Congress to destroy the domestic insurance industry, they certainly succeeded. 

Thirty years ago, U.S. based insurers constituted 85% of the American market. Today it is 27%. 

To err is human but to really destroy an industry, you need Congress and the American tax code. 

The foreign “affiliate reinsurance” scam is an obscure part of the tax code. Why should Americans even care? For starters, it brings jobs back to America. But there is a better reason to care.  When the final version of tax reform passes, no matter how good it is, Americans are going to lose tax deductions they are used to.  Why should foreign companies get special tax breaks when real Americans will be losing some of theirs?

One of the few opponents to repealing this loophole is the Government of Bermuda. They whine that making the playing field level for Americans is “protectionist.”

The foreign “affiliate reinsurance” loophole is only one example of how truly screwed up America’s tax code is. Mike Huckabee makes the joke that the Internal Revenue Code is three times the length of the Bible and has none of the good news.

He’s right and that is a huge problem. 

The tax code is a huge problem.  The best answer is to simply rip it up and start over. But that isn’t likely to happen. The next best thing is for Congress to start eliminating these corporate tax loopholes that do not benefit Americans.

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