Eliminating the Salary Tax Credit for Insurance Companies is Sound Fiscal Policy
The Florida Senate is considering legislation (SB 378) that would eliminate the salary tax credit associated with the insurance premium tax effective December 31, 2016. For Fiscal Year 2016-17, the tax credit costs the state more than $300 million dollars. The bill also proposes to use the savings accrued from the elimination of the tax credit to offset a reduction of the sales tax rate on commercial rent by 1 percent point.
Eliminating salary tax credits for insurance companies makes sound financial sense, and would allow the state to invest in other services/initiatives that benefit all Floridians. Although the salary tax credit is one of many tax credits insurance companies receive in Florida, it accounts for roughly one-third of almost $1 billion in total subsidies for insurance companies in 2016-17. The growing cost of subsidies for insurance companies erodes state revenues without a clear public purpose or return for Floridians. Eliminating the salary tax credit would be an important step forward in plugging holes in Florida’s revenue stream that are draining billions in state revenues.
The following facts on insurance company subsidies in Florida must be considered:
- The annual cost of the salary tax credit has increased by 45 percent since 2010. The cost of this tax credit increased by almost $100 million, from $213 million in 2010-11 to almost $309 million in 2016-17. In total, the state has spent more than $2 billion on salary tax credits for insurance companies since 2010-11.
- The annual cost of all tax breaks for insurance companies is almost $1 billion. The cost of all tax breaks for insurance companies increased from $796 million in 2010-11 to almost $983 million in 2017-18. In total, the state spent almost $7 billion in subsidies for insurance companies since 2010-11.
- The return on investment for state spending on tax breaks for insurance companies is unknown. Florida laws do not require the Legislature to regularly evaluate state spending on tax credits for insurance companies. Thus, there is no way of knowing what Floridians are getting in return for this money.
- Florida spends more on tax breaks for insurance companies than it collects in premium tax revenues. State spending on tax breaks for insurance companies in 2016-17 exceeds total insurance premium receipts by more than $200 million. On average, Florida has spent $1.14 on tax breaks for insurance companies for every $1 it collects in insurance premium receipts since 2010-11.
- The opportunity cost of subsidizing profitable insurance companies is high. One way of estimating the opportunity cost – benefits Floridians are giving up – of subsidies for insurance companies is to compare the cost of subsidies with the cost of other services. State spending on all tax breaks for insurance companies totals more than state spending on veterans and elderly affairs over the same period.
Eliminating the salary tax credit for insurance companies would be a financially sound decision by the Legislature that would allow the state to make investments in other services – including education and health care – that benefit all Floridians.