We have reached the point in the debate about the Optional Federal Charter where its proponents trot out a couple of friendly professors to release a “study” that is designed to undermine the arguments of OFC opponents. Of course, the “study” is funded by the groups backing OFC.

So here’s the spin from the pro-OFC folks and their paid professors: an optional federal charter won’t hurt state economies. In fact, they say, it might help some states.

Here are the facts: According to the U.S. Department of Commerce, insurance companies paid $15.4 billion in premium taxes to the 50 states in 2006, the most recent year for which figures are available. Premium taxes accounted for 2.2 percent of all the taxes collected by the states in 2006.

The National Conference of Insurance Legislators (NCOIL) says an OFC would lead to loss of the state premium tax. OFC supporters counter that the OFC legislation currently pending before Congress (S. 40; H.R. 3200) preserves the rights of states to collect premium taxes. But will it?

At the risk of repeating ourselves, we must again refer you to an item that we ran in last week’s Newsline. Shortly before the OFC bill was introduced in May 2007, the widely circulated draft of S. 40 contained a provision for funding a proposed federal insurance regulator by siphoning off taxes currently collected to fund the existing state regulatory system. The subsection declared states would be prohibited from assessing not just premium taxes, but any state taxes on federally chartered insurers unless they credited the companies’ state tax liability with amounts equal to the sum of all fees paid to the federal regulator. When the press noticed this and wrote about it, the provision was hurriedly withdrawn.

The point is, legislative language had already been drafted shifting premium taxes from the states to the federal government, for carriers opting for federal regulation under an OFC. The mere fact that this language had already been drafted is a serious concern. The provision still sits in a drawer in an office on Capitol Hill, waiting to be attached at the last minute to OFC legislation (or, for that matter, to H.R. 5840, the Insurance Information Act).

The question comes down to: who do you trust?

Do you trust local state legislators across the country or the backers of OFC, who stand to profit greatly by being able to evade state regulation and opt for a weak federal system they designed for themselves?

August 26, 2008