Insurance industry laments loss of TPLF tax, applauds 199a, as 'Big Beautiful Bill' progresses in House

By Isha Marathe

July 2 - (The Insurer) - Insurance trade organizations were dealt some wins as the 199a deduction survived the Senate's final approval, and some losses as the third-party litigation financing (TPLF) tax did not, while the budget reconciliation package move towards a final vote in the U.S. House of Representatives.

They also applauded that the weekend Senate debates stripped a proposed 10-year freeze on enforcing state and local artificial intelligence laws from the draft bill, which would have prevented states from enforcing AI-related laws, including, potentially, members of the National Association of Insurance Commissioners.

The Republican-controlled Senate narrowly passed the package on Tuesday at a 51-50 vote, with Vice President JD Vance breaking a tie after three Republicans joined all Democrats in opposing the legislation.

Speaker Mike Johnson pushed for the final vote to take place on Wednesday to keep with the Republicans' self-imposed deadline of sending the bill to U.S. President Donald Trump's desk before the July 4th holiday, but key holdouts and inclement weather stalled the vote on the House floor. The House in the early hours of Thursday eventually voted to allow the bill to come up for debate, with a final vote expected on Thursday.

For trade organizations representing U.S. P&C insurers and independent agents and brokers, the relevant parts of the sweeping "Big Beautiful Bill" focused on tax provisions, seeing as the bill essentially seeks to make Trump's 2017 tax cuts permanent.

TAX WINS

Nathan Riedel, senior vice president of federal government affairs at the Independent Insurance Agents & Brokers of America, said his members were most glad that the Section 199A deduction for pass-through entities survived Senate scrutiny.

The provision, which was in effect from 2018 through 2025, allowed eligible taxpayers to deduct up to 20% of their qualified business income and 20% of qualified real estate investment trust dividends.

"They're incredibly happy with that... Just because, since 2018, 86% of our members have been factoring in that 20% deduction into their operations to hire more employees and reinvest," Riedel said.

"So if it hadn't been reauthorized or renewed, it would have felt like a 20% tax increase."

Riedel feels that "the weight of the presidency" will likely mean the House can pass the provision into law.

Similarly, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies, said his members were satisfied that the C-SALT deduction cap on state and local corporate taxes – which he sees as an anti-growth, back-door increase in the corporate tax rates – died on the Senate floor last week.

TAX LOSSES

As litigation costs knock up premiums across the country, one of the most talked-about issues in state and national insurance regulation has been around checks on TPLF.

While the insurance industry has pushed to curtail foreign TPLF through state legislation like Georgia's most recent tort reform bill, Trump's bill sought to impose a tax at the rate of 40.8% on any third party to such civil action who receives funds under a litigation financing agreement.

However, the provision failed during the Senate vote when the Senate Parliamentarian determined that it did not meet the Byrd Rule, which is a gatekeeping device that aims to prevent reconciliation measures from being used for policy changes unrelated to the budget.

"Obviously, we were disappointed that wasn't included," Riedel said.

"It certainly doesn't stop the effort to try and address what we view as abuses of third-party litigation funding, primarily from foreign entities that aren't subject to (the capital gains) tax right now... It just won't be through this package."

Despite its popularity, not everyone was unhappy with the failure of the TPLF provision.

Bradford Lachut, director of government and industry affairs at the American Property Casualty Insurance Association, said while some third-party litigation financiers do abuse the system, they serve an important purpose for some plaintiffs.

"Our stance has been that the litigation financing industry is one that does provide a service, but it needs guardrails," he said.

"I don't necessarily know if I want to completely outlaw the practice, because that might leave some people who really need it without any avenue... and this (proposed) tax as almost like a sledgehammer as opposed to a scalpel."

For Lachut, the "scalpel" comes in the form of state-specific tort reform and checks on TPLF, he said.

"It goes back to the AI (moratorium), if we had a nationwide standard, that would be awesome, but unrealistic," he said.

"So (state-based provisions) like increasing transparency, capping interest rates, making clear the relationship between the attorney and the plaintiff, as opposed to the attorney and the lending party...make a lot a lot of sense in terms of protecting the plaintiff who's getting that loan, while still giving them an avenue for that if they need it."

In addition, Lloyd's earlier in the week had welcomed the removal of Section 899, which proposed significant additional tax on UK businesses, from the bill.