WASHINGTON -- Municipal bond insurers would be exempt from a proposed tax on commercial insurance companies under Superfund legislation that was approved by the Senate Finance Committee yesterday.
The committee, which approved the bill on a voice vote, took the step two weeks after the Treasury Department urged the panel not to subject insurers of state and local debt to a proposed far-reaching new tax on insurance companies, including municipal bond insurers, that was approved by the House Ways and Means Committee on Aug. 19.
The Treasury recommended the exemption after state and local lobbyists said the imposition of such a tax would be passed on to issuers and would drive up municipal borrowing costs. Last year, the municipal bond industry insured $108 billion out of the $290 billion of tax-exempt bonds issued.
The bill, approved by voice vote, now goes to the Senate floor and the House is scheduled to take up its version of the measure today or tomorrow.
However, lobbyists say political infighting in the Senate may detail the measure for this year.
The proposal to tax municipal bond insurers was part of legislation to reauthorize the so-called Superfund law, which was passed in 1980 and reauthorized in 1986 and 1991. The law provides for the cleanup of thousands of sites around the country identified by the Environmental Protection Agency as having been contaminated by industrial waste.
As part of the reauthorization effort, the Treasury Department earlier this year proposed creating a new environmental insurance resolution fund to help settle the huge number of disputed claims involving Superfund liability.
To finance the fund, the Treasury proposed levying billions of dollars in new taxes on commercial insurance companies, including municipal bond insurers. The proposed tax was included in the House Ways and Means Committee on Aug. 19, but has never gone to the House floor.
After state and local officials complained that taxing bond insurance companies would be unfair because the levy would be added to issuance costs for general obligation bonds unrelated to Superfund, the Treasury recommended to the Senate Finance Committee two weeks ago to exclude bond insurance firms from the tax.
A Treasury Department spokesman said the Treasury officials changed their minds because the policyholders of bond insurance companies are state and local government and other tax-exempt organizations. Because the Treasury expects all insurance companies to pass on the tax in the form of higher insurance rates, officials said for the bond industry the higher charges would represent an indirect tax on entities that are supposed to be exempt from federal taxes.
John Vogt, vice president of the Public Securities Association, said the PSA "applauds the Senate Finance Committee for recognizing the negative impact the tax would have had on municipalities."
Questions were raised yesterday, however, on whether the bill would even reach the Senate floor because of an all-out assault by Republicans on administration-sponsored legislation and the fast-approaching adjournment date.
Senate Minority Leader Bob Dole, R-Kan., said Congress was running out of time to pass any substantial legislation before adjourning.
"There is a lot of skepticism for the overall prospects that [Superfund] is going to be enacted" this year because of the late date, a securities lobbyist said yesterday.
Even if the Senate and House approve separate bills, lobbyists doubt whether conferees will be able to reach a final agreement before Congress adjourns for the year.
While the Senate Finance Committee eventually approved the bill, committee member Sen. Malcolm Wallop, R-Wyo., tried to remove the entire insurance tax provision. His amendment was defeated 13 to 7, but he said he would attempt to kill the provision again when the bill gets to the Senate floor.
Since the Superfund bill is the only tax vehicle moving through Congress in these last two weeks before adjournment, several senators tried to attach tax-related amendments but were defeated.
Sen. Charles E. Grassley, R-Ohio, and Sen. William V. Roth, R-Del., offered separate amendments attempting to extend the 25% health insurance tax deduction for the self-employed. Grassley would have paid for his amendment by killing the federal child vaccine program and Roth proposed paying for his by increasing the tobacco tax.