Cash-strapped states are having a historically hard time balancing their budgets. Over and over again, officials face difficult–almost unacceptable choices–of cutting beneficial or vital programs, or raising revenue through direct and broad tax increases
Seeking to avoid the need to make such difficult calls, many government officials strive to identify creative ways to raise revenues. Increasingly, the insurance industry has become the target of innovative efforts to close budget gaps. While not surprising under the circumstances, these efforts are short-sighted and ill-advised.
State efforts to raise revenue from insurance can take a variety of forms. The most direct method is to raise the state's premium tax. This is commonly the initial action contemplated by legislators eyeing insurers as a source of additional revenue, but their enthusiasm typically is muted when the legislators come to understand that because of retaliatory taxation, raising the premium tax typically triggers the unintended consequence of putting that state's domestic insurer at a competitive disadvantage in other states in which they do business.
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