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I appreciate the remarks that you made, Mr. Chairman, concerning the tax expenditures of insurance companies, and what they bring. And it is true that more people are buying into IRA's and Keogh plans, and pension plans, and life insurance policies, but I wondered whether or not this is like Mr. Stanley pointed out, whether this is part of the American dream to have that kind of security for yourself and your family.

Is everybody having a home a loss to the U.S. Government because they can deduct related taxes? I think America would be better for it, if everybody owned a home, even though it might cost a tax expenditure on the part of the Government, and they deduct their related taxes from their income tax.

But, be that as it may, I want to commend the panel, because I can see from their articulation that the insurance company is in very, very good hands.

I am very concerned about the fact that the President signed a bill in 1984 in which he agreed to after some several years of negotiations, discussions, dialogue, hearings, consultations that went on back and forth, and finally we came to a bill, and now we are not going to give the bill a chance to work itself out.

When we talk about the tax proposal, we talk about fairness, we talk about simplicity and economic growth. The fairness part is, I think, not part of the insurance companies' problem, because it is part of America having a life insurance policy.

From the simplicity part of what the President's document wants to get at, I think it is undeniably more complex than anything we have had in the past, especially any regarding the 1099's that might have to be filed and the questionnaires, and everything that has been testified to here during the day, that for one can ever say that the amount of paperwork that is going to be created by this administration's proposal is ever going to be simple. It is certainly more complex and expensive to operate, so let's get to the economic growth question.

Does it bring us economic growth? Does it bring us better capital formation?

But let me get down to just a simple question about jobs. How does it affect the jobs within the insurance industry? How will it affect the hundreds of thousands, the millions of people that are related either directly or and necessarily to the insurance industry?

How does it affect the agents and the employees working for the insurance industry? Are we going to have more jobs, more growth, or are we going to have a retarded industry?

Could you address yourselves to the jobs question.

Mr. KEENAN. To the extent that the inside buildup is taxed, then we are going to see a shift in the sale of insurance to term insurance, which would mean a displacement for many of us who do sell life insurance, and that displacement will create some lack of activity within the home office of the companies which we represent. And that means loss of jobs for people in the insurance industry, that means loss of money in the communities where they live, and in terms of economic growth, it means loss of money being contributed to the economy of this country.

And that one issue alone, I think, more than any others, the taxation of the inside buildup, would create that situation.

Mr. GUARINI. So from an economic growth viewpoint, it is a disaster to have this insurance industry turned upside down, to the totally changed, and you would view that there would be a number of jobless on the part of both agents and employees of the company, as a matter of fact.

Mr. KEENAN. Yes, sir, I think it would create total disaster.

Mr. GUARINI. How do you feel, Mr. Bobo, and Mr. Stanley, any of you gentlemen, do you have an opinion?

Mr. BoBo. We don't really have to speculate too much about that, because we do have a model north of the border in Canada. In 1981 they did pass a law taxing the inside buildup on annuities, and the sales of annuities plummeted, and so clearly this demonstrates that to the extent that the product is taxed in this fashion, it becomes less desirable and less of it is purchased, and that obviously affects the chain of events that Mr. Keenan referred to.

Mr. GUARINI. Besides jobs, do you think it would also—and this is a thought I just had-create offshore insurance companies, where they do have tax advantages, that they would be operating within the United States to the detriment of industries that are already well established within our country?

Mr. STANLEY. I am not sure it matters why a domestic industry is no longer there. If it is nonexistent as a transaction, or if it is dominated by other suppliers, the effect on the whole economy is the same. I think that it is not just inside buildup.

It is anything that would discourage the purchase of permanent life insurance. If the ability to borrow against it and deduct the interest is restricted in any way conceptually, that will discourage the sale of the policies and have the same effect that Mr. Bobo and Mr. Keenan referred to.

If the taxation at the carrier level increases their cost, which gets passed through into eroded capabilities of policies or more expensive policies that will discourage their purchase.

If the tax on inside buildup is present or even prospectively present, that will discourage the purchase of whole life insurance as it is doing right now. It is already depressing the industry. The industry is suffering right now, from the prospect of the American nightmare. And the American nightmare is that Congress will do something to make it more difficult for people to provide for their financial security with their own money.

Mr. GUARINI. Šo what we are talking about is not just hurting an industry that has been well established, but hurting our entire economy, which affects all our people, which affects expansion, capital formation, the mortgages that companies give out so homes can be built, and our entire economy, it has an impact as a result of these proposals.

Mr. STANLEY. I wish everyone in Congress would study the issues, which you obviously have, in order to understand what the ramifications of what appear to be just simple additional revenue

may have.

Mr. GUARINI. Let me just lastly ask you, what about the consumer? Would it then inevitably cost him more money to buy the same kind of life insurance?

Would there be an impact on the consumer, Mr. John Q. Public, who is trying to insure his family and get security for his wife and children?

Mr. STANLEY. That is where the ultimate impact rests. They will not be able to afford to accomplish long-term financial security, because the alternative routes to that security are unworkable for the average American.

Mr. GUARINI. Thank you for your answer.
Mr. STARK. Thank you.
I thank the panel. The committee stands in recess.

[Whereupon, at 3:55 p.m., the committee recessed, subject to the call of the Chair.)

COMPREHENSIVE TAX REFORM

MONDAY, JULY 22, 1985

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, DC. The committee met, pursuant to call, at 9:30 a.m., in room 1100, Longworth House Office Building, Hon. Beryl Anthony, Jr., presiding.

TOPIC: INDIVIDUAL MINIMUM Tax PROPOSALS, CHARITABLE GIVING,

AND IMPACT ON MINING Mr. ANTHONY. The Ways and Means Committee will come to order. I ask our guests to file in as quietly as possible and obtain their material and have a seat. We have several witnesses this morning. I think we should go ahead and get started.

I welcome the witnesses to today's hearing on minimum tax. I think a consensus has emerged. Even in the context of fundamental tax reform we will continue to need some kind of minimum tax.

As the old American saying goes, “You build a better mouse trap, someone is going to build a better mouse.” No matter how many loopholes we close someone will find some new ones.

I hope today's witnesses will advise this committee on how we can best construct a minimum tax as a last defense against the army of lawyers, accountants, and other tax specialists that will inevitably be launched against any reform tax system that emerges from this summer's hearings.

Today we will also hear testimony on the impact of tax reform on the mining industries and the timber industry. Our first witness today is the Honorable Charles E. Bennett, Member of Congress from the State of Florida.

Welcome, Mr. Bennett.

STATEMENT OF HON. CHARLES E. BENNETT, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF FLORIDA Mr. BENNETT. Thank you very much for this opportunity. I am very honored to come before this committee which has so much to do with the welfare of our country.

The primary objective of the current push for tax reform should be restoring real fairness to the Tax Code. The code accumulated loopholes through the years and was in 1981 radically slanted to give new help to the wealthy and corporations, by the 1981 tax cut. That may not have been its purpose but that is what happened. The 1981 law greatly increased opportunities for many wealthy in

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dividuals and highly profitable corporations to exploit loopholes and allowed many taxpayers to escape all taxation on very substantial incomes.

The President's proposed flat tax as now submitted and unamended would reward the rich at the expense of the middle income families. Everybody in the high brackets will get a great tax reduction in percentage and in dollar amounts; and, since the poorest are properly helped, only the middle income brackets will be held hostage for the red ink caused by the rich escaping taxes. A rumor has been circulating that the graduated income tax is difficult or complex because it is graduated. Anybody who has ever made out his income tax knows that is not true. Everybody knows, in fact, that this is not so; as the tables give an instant answer once the taxable income base has been figured. What is complex is the array of loopholes to be considered in figuring the taxable income, and the feeling on your own part whether you have left any out.

Each of the loopholes was passed for a popular or conceived-to-beneeded purpose; and each will be very difficult to repeal. What is then the answer to achieve a fairer tax structure.

What is clearly needed is minimum tax on all income to insure that well-to-do individuals and profitable corporations pay a fair share of taxes on their income. The President's 1985 tax reform does not really provide a minimum tax because, after its enactment, wealthy individuals and corporations could still escape all taxation.

During 1984 alone it has been estimated that the U.S. Treasury lost $24 billion because of tax shelters. The December issue of Fortune Magazine listed 15 major corporations that have paid no taxes since the 1981 tax bill was passed even though they had in those years total profits of $14 billion, in fact, many of these corporations received tax refunds.

The Internal Revenue Service has compiled statistics showing that over 20,000 people with adjusted gross incomes of over $50,000 paid no income tax in 1982. In 1983, there were 447 cases of individuals with incomes of more than $200,000 who paid no income taxes. Also, more than 20 people who made over $1 million in 1983, paid no income taxes. It is utterly wrong for some people and corporations to avoid paying taxes when they have substantial incomes while other honest and hardworking individuals and businesses struggle to pay more than their just share of taxes.

I have introduced a bill, H.R. 18, that would impose a real minimum tax of 10 percent on net ncomes over set minimums for individuals and corporations. This is just the most recent of a series of bills like that I have introduced for the last 20 years in Congress. This legislation would insure that wealthy individuals and corporations do not use tax loopholes or tax shelters to escape all taxes. It is not a surtax or a tax increase for a taxpayer who already pays 10 percent on his income. Anyone already paying more than 10 percent on his income would not be affected. It only applies to individuals and corporations who pay less than 10 percent and it only applies to amounts above the minimums set in the statute.

My bill defines “net economic income” to which the tax would apply as the total amount of income received during the taxable year, which can be reduced only by necessary expenses incurred in

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