Rapid Reader Bulletin digest

Rapid Reader Bulletin digest

IIAA to fight for level playing field in financial services reform plans

The Independent Insurance Agents of America is gearing up to beat back the latest attempt to let banks take over their turf. This time the threat comes from the Clinton Administration. In a surprise announcement, Treasury Secretary Robert E. Rubin proposed breaking down the barriers that have separated commercial banks, securities firms and insurance companies.

The proposal would in effect scrap the Glass-Steagall Act and allow banks to line up with Wall Street firms, insurance companies and other financial services firms. The banks could underwrite securities, sell insurance and carry on other financial services business.

Rubin said the proposal would promote competition and force companies to provide better service to consumers at lower cost. But that’s not how the IIAA sees it. “Inevitably, this plan would lead to a concentration of economic power in a few megacorporations at the expense of independent agents and thousands of other small financial services institutions,” said Paul A. Equale, IIAA senior vice president of government affairs.

The financial impact of Superfund: Who pays for cleanups?

Much of the debate surrounding the nation’s hazardous waste clean-up program is based on economics–who pays for the cleanups and how–with proponents of various reform plans promising reductions in transaction costs and product prices, and increases in labor productivity and competitiveness.

Now, as the property-casualty insurance industry pushes for reform of Superfund, comes a new study –Footing the Bill for Superfund Cleanups: Who Pays and How?–whose authors say the debate has taken place in a “factual vacuum” and that “reform could make things worse.” Published by The Brookings Institute and Resources for the Future, the study provides the first comprehensive analysis of the economic effects of Superfund’s liability provision and taxes.

Among other issues, the study examines how much potentially responsible parties are spending on both transaction costs and on-site cleanups, and how these costs ultimately may be borne by individuals–as consumers of the products or services provided, or as shareholders or bondholders, employees, or managers of the companies.

The authors look at short-term financial implications of changes in liability and taxes on key sectors affected by Superfund: chemicals, oil, mining, and commercial property-casualty insurers. They analyze the incidence of different taxing mechanisms and compare the financial effects of the current Superfund program and four liability alternatives.

Among the most notable of their findings is the surprisingly small difference in the total annual costs of these different financing approaches. The cost difference between the most expensive option the authors consider, the current Superfund program, and the least expensive, one that would eliminate liability for wastes disposed of before 1987 at all multiparty sites on the EPA’s National Priorities List, is less than 4%.

So why all the controversy over the proposed changes to Superfund’s liability provision? The authors are quick to point out that while there is little difference in the total annual costs of the alternative proposals, which companies and industries pay and how they pay vary in important ways. “This helps explain why responsible parties find it worth spending time and money to influence the congressional debate,” the authors say.

Because any change in liability also would necessitate a change in trust fund revenues, the study examines the economic implications of a variety of taxes that could be used to finance the creation of a larger trust fund for site cleanups. These include an increase in the corporate environmental tax and the implementation of new taxes, such as an excise tax on commercial insurance.

The most surprising finding is that more money may be spent on administrative compliance costs associated with taxes than is spent on transaction costs under the current Superfund scheme. Because of the additional costs of any new taxes, the authors say that “reform could make things worse.”

This study further helps to give some sense of proportion to the Superfund debate. Far from being the most expensive federal environmental regulatory program, Superfund accounts for less than one out of every $20 spent for environmental protection in the United States each year.

Copyright Rough Notes Co., Inc. Apr 1995

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