Monthly LRA Update: May 2021

TAX DEVELOPMENTS

Biden Administration Tax Policy Update

As we reported last month, the Biden Administration released an infrastructure plan and the Made in America Tax Plan. On April 7, the Treasury Department released a report further describing this plan. Corporate tax reforms outlined in this plan include

1. Raising the corporate income tax rate to 28 percent;
2. Strengthening the global minimum tax for U.S. multinational corporations;
3. Reducing incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes;
4. Enacting a 15 percent minimum tax on book income of large companies that report high profits, but have little taxable income;
5. Replacing flawed incentives that reward excess profits from intangible assets with more generous incentives for new research and development;
6. Replacing fossil fuel subsidies with incentives for clean energy production; and
7. Ramping up enforcement to address corporate tax avoidance.

On April 28, the Biden Administration released another spending and tax plan called the American Families Plan. A fact sheet was also released. This plan sets forth a number of proposals for education and child care assistance, among various others. In addition, this plan sets forth certain tax reform proposals that are distinct from those in the Made in America Tax Plan. The tax reform proposals included in the American Families Plan focus on the highest income Americans. Priorities include

• Revitalize enforcement – Audit rates of those making over $1 million per year fell by 80% between 2011-2018;
• Increase the top tax rate on the wealthiest Americans to 39.6% – This would reverse the 37% top marginal rate implemented by the TCJA; and
• End capital income tax breaks – Households making over $1 million would pay the same 39.6% rate on all income.

JUDICIAL DEVELOPMENTS

USAA Settles Class Action COI Complaint

On April 9, the parties in Spegele v. USAA Life filed a motion disclosing a class action settlement that was reached. The plaintiffs alleged that USAA violated the terms of its universal life insurance policies by deducting COI charges in amounts greater than the policies authorized.

The policies in scope included a provision stating that COI rates would be determined by USAA Life “based on its expectations as to future mortality experience.” Plaintiffs alleged that USAA Life included additional, unauthorized factors in setting the COI rates, including undisclosed maintenance and administrative expense factors.

According to the brief, settlement negotiations ramped up subsequent to the Court’s September 2020 certification of the plaintiff class. The parties reached a $90 million settlement. Class Counsel will seek a fee award not to exceed 30% of the settlement. The settlement class includes persons or entities who own or owned one of approximately 122,000 specified policies issued on or after March 1, 1999.

Docket: Spegele vs. USAA Life Insurance Company, Case No. 5:17-cv-967-OLG