The Joint Labor Committee of the Maine state legislature has voted to carry over a proposal (LD 1021) opposed by the American Insurance Association that would increase the premium tax by 25 percent. This measure would increase the tax on gross premiums from 2 percent to 2.5 percent.
“The carry over means the bill should not move this session, but will be debated again in 2006. AIA will continue to oppose the proposal. This tax increase would damage the state’s economy by making it much harder for Maine domestic insurers to compete, and it will increase insurance costs for drivers, homeowners and other insurance policyholders,” said Paul Moran, AIA vice president, northeast region.
Earlier the bill was reported out of the Labor Committee, but the House took no action on it and it was recommitted to the committee which then voted to carry it over.
“The reason AIA will continue to oppose this measure is that Maine already has one of the highest tax rates on insurers in the nation. In addition to the 2 percent gross premium tax, the state imposes an additional 1.4 percent premium tax to fund fire investigation and prevention. These taxes are imposed on the gross premiums, so even if an insurer has no net income they must pay the tax,” said Moran.
Further, insurance is unique in that states impose “retaliatory taxes” on insurers domiciled in other states. This system ensures that an insurer pays the greater of its home state tax burden or its market state tax burden. Maine’s domestic insurers will reportedly be liable for retaliatory taxes whenever they do business in states with lower aggregate insurance tax burdens. This will reportedly make it difficult for Maine’s domestic insurers to compete in other states.
According to AIA, the purpose of the tax increase is to subsidize health benefits for some retired municipal police officers and firefighters. Funding the health benefits is a worthy goal, but this funding mechanism is the wrong one.
“Singling out one industry and its Maine policyholders to fund benefits for a specific group of retirees is simply bad public policy. Another funding source should be found,” concluded Moran.
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