President Obama said this week that he wants to crack down on firms that avoid U.S. taxes by using offshore tax havens. That could bring as much as $210 billion in badly needed revenue into the Treasury over the next 10 years. But it may also hurt U.S. insurers already reeling from the recession.
Among the insurers that have subsidiaries in tax havens or financial privacy jurisdictions are American International Group (AIG), Hartford Financial and Travelers, according to Business Insurance.
AIG, as we know, is already in desperate straits, trying to sell off pieces of the company at fire sale prices to pay back its TARP loans. Hartford is a little better, but last week it reported a first quarter loss of $12 billion, and its chief executive did little to quell speculation that his company was up for sale.
So is Obama squeezing blood from a stone? A U.S. Government Accountability Office report that focuses on Ugland House, a law office in the Caymans with 18,000-odd corporations and entities under its roof, indicates there are plenty of other corporations, such as Coca-Cola and Altria, that are still making big bucks and may be avoiding U.S. taxes by keeping it overseas.
But going after U.S. insurers right now, particularly when taxpayers effectively own most of AIG, might not make a whole lot of sense.
U.S. insurers will be quick to point out that there are also tax havens in Bermuda, where hedge funds and reinsurers hang out. Reinsurers provide insurance for property casualty insurers in the event of catastrophes like hurricanes, and they are allowed to keep big amounts of liquid and virtually untaxed cash available because it could be needed if there's another disaster like Katrina. Why not tax them too?
Obama's plan to squeeze U.S. companies out of their overseas tax havens has to get through Congress, so, at least for now, it's simply a repeat of the promise he made during the campaign. But given his majority in Congress, insurers should keep their Washington lobbyists on speed-dial.