Senators Tom Harkin, D-Iowa, and Chuck Grassley, R-Iowa, led a bipartisan group of five senators in introducing legislation to increase the alternative tax liability limitation for small property and casualty insurance companies.
The small companies targeted in the proposed legislation mostly serve rural communities, such as those in Harkin and Grassley’s home state of Iowa, which rely on alternative tax liability adjustment to provide additional surplus and cash flow use to pay their customers’ insurance claims.
Currently, property and casualty insurance companies with annual premiums above $350,000 but less than $1.2 million can elect to be taxed on their net investment income as opposed to their annual operating income. The Small Mutual Inflation Update bill they introduced Tuesday would adjust the eligible premium index for inflation—for the first time since 1986—to $2.012 million, increasing the current maximum limit and indexing it to inflation thereafter.
“Put very simply, this legislation will benefit Iowa’s small insurance companies,” Harkin said in a statement. “These companies have served Iowa communities for decades, and are an integral part of Iowa's economy. I hope that the Senate Finance Committee will adopt this commonsense proposal as they move forward on tax reform in the coming months.”
The legislation was cosponsored by Senators Roy Blunt, R-Mo., Amy Klobuchar, D-Minn., and Jay Rockefeller, D-W. Va.
“Some thresholds in tax law aren’t indexed for inflation, and that means they become outdated,” said Grassley. “Our legislation updates a key threshold for small insurance companies so they can continue serving their rural customers. This legislation helps to ensure that small mutual insurance companies will continue to be able to serve rural residents who have unique circumstances, such as living far from a fire station, and so are often unable to obtain private property insurance through traditional insurance companies.”
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