If you were like me, you read this New York Times article about states changing their laws to accommodate “captive” insurance companies—that is, subsidiaries set up by large companies to insure themselves—and wondered wait, isn’t that what mayor Vince Gray wanted to do in D.C.? What’s the point of creating special tax treatment for insurance companies if everybody else is doing it too?
Actually, D.C. is far ahead of the game here. According to Lawrence Mirel, the former D.C. insurance commissioner who came up with the tax shelter proposal in the first place, the District changed its laws back in 2002 to allow for captive insurance companies. Now, it’s got some 140 of them—one of the biggest insures Medstar—which puts D.C. fourth or fifth in the country, and brings in millions of dollars a year in tax revenue.
What Mirel wants—and Gray, and Chief Financial Officer Nat Gandhi, and Councilmember Jack Evans endorse—is something that D.C. alone can do, by virtue of its status as a federal jurisdiction. Currently, “catastrophic reserves” for future disasters are kept offshore because in America, they’re subject to federal income tax. Congress could only do away with the income tax on such reserves here in D.C. Thus, no risk of competition from insurance-friendly states like Vermont.
Hey, might as well take advantage of non-statehood where we can.
For lots more information, read the white paper.