The state legislature is poised to enact two tax measures that would help Connecticut protect its 68,000 insurance jobs from efforts by states such as Iowa, Nebraska and New Hampshire to lure them away.
One bill would reduce its 1.75 percent annual tax collected on net direct premiums, dropping the rate to 1.25 percent this year, to 1 percent in 2009 and to 0.5 percent in 2010 and thereafter.
The state coffers would take a hit if the phased-in tax reduction is enacted. An Office of Fiscal Analysis report concluded that there would be a $39.7 million revenue loss for the state in the first year, followed by an $88 million loss in 2009 and a $145 million loss in fiscal year 2010.
Despite that huge price tag, the tax-cut bill, HB 5516, has drawn little opposition. At a recent public hearing, the insurance and real estate committee heard no testimony from opponents of the measure. After the hearing, all 18 committee members present voted in favor, and the bill has been reported out to the full House of Representatives.
Supporters, including the Insurance Association of Connecticut, the Connecticut Business & Industry Association, the Connecticut Conference of Municipalities and the MetroHartford Alliance, noted that Connecticut has the highest percentage of insurance jobs in the country — they pay 6.1 percent of total state wages.
Sends A Message
However, Iowa, which cut its premium tax from 2 percent to 1 percent in 2004, is growing its insurance jobs. The state has the second highest insurance job concentration in the nation and added insurance jobs at an 8.8 percent rate between 1995 and 2005.
In contrast, Connecticut added insurance jobs at a rate of only 2.4 percent.
“A reduction in the premium tax rate sends a message to corporate site selectors and real estate service providers that Connecticut is competing for new business,” said Susan Winkler, executive director of the state’s Insurance and Financial Services Cluster.
The second bill, HB 5156, would allow insurance companies to transfer tax credits to affiliate companies. While that bill does not create new tax credits, it permits insurers who have earned credits to use them more efficiently.
In particular, it allows tax credits earned by an insurer to be shifted to affiliates that purchase and lease assets so that the property affiliates can offset city property tax surcharges.
That bill was also approved by the insurance and real estate committee and has been referred to the committee on finance, revenue and bonding.
Both of the proposed bills are designed to boost the state’s competitiveness in the insurance industry.
Connecticut has collected a 1.75 premium tax since 1995, although numerous exemptions have been enacted in the area of health care.
For example, HMO contracts that cover health care for state employees are exempt from the tax, as are Medicare patients, Medicaid recipients, retired teachers and municipal employees, according to a 2006 analysis produced by the Office of Legislative Research.
Before 1995, the premium tax ranged from 2 percent to 2.75 percent.
The research analysis, written by Janet Kaminski, an associate legislative attorney, estimated that the premium tax would generate $264.9 million in revenue for the state in fiscal year 2006.
Winkler noted that the insurance industry provides not only 68,000 direct insurance jobs, but also 91,000 support service jobs.
“We are under intense competition to keep these jobs in Connecticut,” she testified to the insurance and real estate committee last month. “One important step to help maintain our status as the insurance capital of the world would be to support passage of this important legislation.”
