WASHINGTON -- A proposed new tax on insurance companies included in the House Ways and Means Committee's Superfund bill would apply to municipal bond insurers, thus raising borrowing costs for state and local governments, lobbyists said yesterday.
But the final version of the tax proposal may not cover the bond insurance industry, which insured $108 billion out of the $290 billion in tax-exempt bonds issued last year.
The Treasury Department, which originated the proposal, recommended this week that bond insurers be exempt, and the Senate Finance Committee is expected to accept that recommendation when drafting its version of the Superfund bill next week.
If the tax is enacted, "it's going to be passed through to issuers, so it will increase the cost of issuance at a time when people have a lot to issue at higher and higher costs" said a lobbyist who asked to remain anonymous.
The proposal is 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 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 Superfund bill approved by the House Ways and Means Committee on Aug. 19. The full House is expected to act on the measure next week.
Taxing bond insurance companies is unfair to bond issuers because the levy "would be passed along for general obligation bonds and other things that don't have anything to do with Superfund," said Milton Wells, the director of federal relations for the National Association of State Treasurers. Officials from several bond insurance companies could not be reached for comment.
On Wednesday Treasury assistant secretary for tax policy Leslie Samuels told the Senate Finance Committee the department is now proposing that its tax plan exclude bond insurance companies.
A Treasury spokesman said the department wants the bond insurers to be exempted because their policyholders are state and local governments and other tax-exempt organizations. The Treasury expects all insurance companies to pass on the tax in the form of higher insurance rates, which for the bond industry would mean an indirect tax on entities that are supposed to be exempt from federal taxes, the spokesman said.
John Vogt, vice president of the Public Securities Association, said the PSA "is very encouraged" by the Treasury's new recommendation, and is hopeful that the Finance Committee will accept it.
If that happens, the question of whether to tax the bond insurers will have to be resolved in the coming weeks when House and Senate conferees meet to reconcile their different versions and hammer out a final Superfund bill before adjourning in mid-October.