From Capitol Hill: Watching tax and entitlement reform

By Scott Maker, senior vice president of Government Affairs

It is difficult not to be distracted by all the noise coming from Washington. Sometimes it seems as if you can’t turn on the TV, surf the net or open a newspaper without being bombarded by more evidence of the dysfunction in D.C. So while there is no doubt that the issues facing our country are critical, there is considerable doubt about how and when Congress will address them.

After Congress returns from its summer recess, it will need to confront some serious issues – the extension of the debt limit, reconciliation of the differing deficit reduction approaches proposed by the House and Senate, and possibly comprehensive tax reform, just to name a few. Moving forward on any of these matters will be extremely difficult, and, if it does happen, will likely not happen until the last possible moment.

As you know from our past columns, we closely follow developments in Washington in order to assess the potential impact of legislation and regulations to our industry and to our company. Currently on the top of our mind are the discussions occurring around tax reform. Although political barriers to meaningful reform are high, recently the dialogue has become more serious and focused.

One of the major implications of tax reform for our industry stems from the anticipated review of so-called tax expenditures, which are provisions in the tax code that provide tax breaks as a way to encourage certain behaviors, such as facilitating the delivery of financial protection products to employees at the workplace.

While there is no specific proposal at this time to eliminate the tax expenditure for employer-provided benefits, it is likely that the provision of the tax code that creates this expenditure will undergo the same level of scrutiny as other provisions with similar purposes. In light of that, efforts are under way at both the company and industry levels to ensure a readiness of response if and when specific proposals emerge.

It will be very important to convey the message that the employer-based distribution model is one of the most effective ways to provide affordable and essential benefits to workers, and that this tax expenditure serves an important policy objective that is important to both consumers and taxpayers.

Likewise, changes to entitlement programs are also potential components of reform efforts. The future solvency of Social Security is a big concern for Congress – particularly the Social Security Disability Insurance (SSDI) program which is expected to be depleted by 2016.

Conversations around SSDI reform pose both short-term and long-term challenges, but also may provide an important opportunity for our industry. One outcome of the debate over SSDI reform could be a better-informed public that more clearly understands the need for income protection and private disability insurance protection.

Despite the current political environment, we believe there are opportunities to advance our industry’s message about the value of – and necessity for – income protection benefits. The strain on government resources is more evident than ever, and the number of financially fragile families continues to grow as the economic environment remains uncertain. Yet nearly 70 percent of workers don’t have protection for their most valuable asset: their income.¹ As an industry, we have a real opportunity to influence the dialogue and work with the public sector to find ways to make these benefits more accessible to working Americans.

As mentioned in last quarter’s column, we have had tremendous success in getting the attention of the Department of Labor and the President’s Advisory Council on Financial Capability. Each agency has made significant recommendations about the important role that both employers and the income protection industry can play in helping employees prepare for the financial consequences of illness and injury.

I encourage you to continue this positive momentum and share these important findings with your colleagues. Together, our voices are stronger – and can influence this crucial discussion.

We will keep you updated on all of our efforts. If you have any questions about these issues generally, or on Unum’s efforts regarding them, please feel free to contact Scott Maker in Unum’s Government Affairs department at smaker@unum.com.

¹Bureau of Labor Statistics, "National Compensation Survey: Employee Benefits in the United States," March 2012.