Opinion: Feds need to follow Iowa's lead in encouraging captive insurance
Small businesses are the lifeblood of Iowa’s economy and need ways to protect their operations despite once-in-a-lifetime setbacks such as pandemics or natural disasters. That’s why I led the way this legislative session, bringing captive insurance to Iowa, and providing small-business owners and farmers one more way to plan for the unexpected.
Very simply, captive insurance is a real insurance company formed by a parent company to cover its particular risks. In other words, a business can set aside funds to cover future risks, instead of, or in addition to, paying traditional insurance premiums.
In particular, small businesses can benefit tremendously from these policies. Congress recognized this fact almost 40 years ago and passed legislation exempting captives with under $2.65 million in annual premiums from federal income taxes, specifically to encourage small businesses to use them.
Small-business owners face more and more risks in an uncertain world and rightfully believe they need new ways to protect themselves from unforeseen catastrophes. We celebrate frugality and good saving habits among individuals and families — I believe we should do the same for businesses taking smart steps to plan ahead.
The Iowa Legislature agrees. In fact, our captive legislation passed both chambers of the Iowa Legislature without a single dissenting vote and was recently signed into law by Gov. Kim Reynolds. The bill also cut taxes for insurance companies across the board, meaning Iowans keep more of the money they earn and face lower insurance costs while guaranteeing that Iowa remains a global industry leader.
This legislation gives businesses the freedom to protect themselves and the right to determine their own future. My colleagues and I clearly believe that’s the right approach.
Unfortunately, our efforts stand in stark contrast to the approach from the federal government. Their recent actions have included hiking taxes, flooding an activist IRS with cash, and unleashing the bureaucracy against hardworking Americans.
A perfect example of this is how the IRS treats captives owned by small businesses. The agency has issued unclear, illogical, and unreasonable regulations targeted at these captives, and refused to correct obvious regulatory contradictions.
People of good faith can differ on these issues. However, there is no room for poorly designed or arbitrary regulations issued to destroy an entire industry, especially one with so many benefits for small businesses.
Iowa has long stood for smart, common-sense regulations, especially on insurance, which has kept our state at the forefront worldwide. I am committed to continuing this tradition and working with my colleagues in the Legislature to help local businesses guard against risk.
In that spirit, I’d like to take this opportunity to ask the IRS to craft consistent, reasonable guidelines for small captives to operate within. That way, honest small business owners can follow the law while protecting themselves from unforeseen risks.
Michael Bousselot represents Senate District 21, which includes most of Ankeny, in the Iowa Senate, where he serves as vice chair of the Commerce Committee.
This article originally appeared on Des Moines Register: Opinion: Feds need to follow Iowa's lead, encourage captive insurance
