Taxes Incurred by, and Business Trends of, the Life Insurance Industry

GAO discussed taxation of the life insurance industry and its components. GAO noted that: (1) the Deficit Reduction Act of 1984 changed life insurance company taxation methods by eliminating distinctions between sources of income; (2) the act also reduced the amount of policyholder dividends that mutual life insurance companies could deduct; (3) the life insurance industry incurred more taxes than expected between 1984 and 1986; (4) mutual companies paid less than the anticipated 55 percent of industry taxes, but not necessarily less than their representative portion of industry income; and (5) the mutual share of industry variables such as assets, capital, and surplus declined from 1984 through 1986, while the mutual share of insurance in force, premium income, and new insurance increased slightly during the same period. GAO also noted that it is continuing to study taxation method issues.