It wasn’t too long ago that the country suffered probably the toughest financial setback since the Great Depression. Millions lost their jobs as well as their homes and it seemed that there was no room to recover.
When people thought back to where it all started, they looked at companies like AIG and Lehman Brothers, companies that received bailout money (TARP funds) from the government – and taxpayers – as a result of mishandling money and having the action backfire. Now, to the joy of many taxpayers, President Barack Obama is insisting that these companies pay back the money via a tax that he plans to impose.
What’s interesting about the requirement to pay back the funds, however, is that some insurance companies have been thrown into the equation as well. Now some are wondering how insurance companies became liable and wonder whether individual insurance policy premiums will increase, as well as where revenue from the taxes will actually end up.
What’s Up with the Tax?
So, if you’re not up to date on the new tax that Obama has proposed, let’s take a look at it. Basically, Obama proposed around the middle of January 2010 that he would like to hold the bailed out companies accountable for the money they received – especially those companies that have, for the most part, been able to bounce back.
Since some companies seemed to be taking their time paying back their funds, Obama proposed the tax be required for companies that have brought in more than $50 billion in assets. According to reports, the tax will equal about 0.15 percent of a company’s total assets minus high-quality capital (this might include common stock as well as disclosed and retained earnings). It is set to start after June 30, 2010.
Why Insurance Companies Are On the Hook
Some question how insurance companies got thrown into the equation when it was the financial institutions that received the bailouts. The answer is that some insurance companies actually owned insured depository institutions, making them eligible for the tax even if they didn’t directly receive a bailout.
Some companies on the hook for the tax are AIG, Metlife, Allstate and Prudential. Here is a breakdown of what these and a few other companies would owe yearly:
- Hartford Financial: $28.2 million
- Lincoln National: $29.4 million
- Allstate: $34.1 million
- Prudential: $84 million
- Metlife: $97 million
It’s probably not a surprise to learn that AIG is the insurance company required to pay the most back. According to reports, the insurer has to pay $388.8 million.
What Will Happen with Insurance Policies?
Many have voiced concerns over insurance companies pushing the cost of the tax on to taxpayers to help cushion the blow. In particular, Republicans have explained that this occurrance is not only possible, but probable, which is why they oppose the tax.
However, to date, there is no official word on whether the companies will indeed attempt to recoup some of their money by passing some fees down to their customers. Those in favor of the tax say that if this does occur, many customers will probably shift their business to smaller institutions.
Will Taxpayers Actually be Paid Back?
While information is available as to how much companies will be required to pay or repay for TARP funds, there hasn’t been much word about where the funds will go after they’ve been collected. According to reports, the collection process is expected to take up to 12 years, but no one’s said exactly how it will affect taxpayers.
Hopefully more information will be distributed about just how this new tax will affect the taxpayers who bailed out companies, as well as the truth behind whether insurance companies will try to hike up their prices in order to cover their repayment costs.
In the meantime, we will have to watch for updates on the TARP repayment tax to learn just what’s going on with our money.