In 2007, New England’s financial services industry contributed more than 11 percent of the region’s economic output, providing well over 500,000 full or part-time jobs. Despite the turbulence of the recent national recession, the financial services industry continues to exceed 10 percent of the gross state product in Connecticut, Massachusetts and Rhode Island, with the other three New England states averaging around five percent.
Among our members, the New England Council counts many of the nation’s top financial services firms, along with a range of smaller entrepreneurial financial organizations. Members include life, health and property casualty insurers, commercial and community banks, credit unions, investment houses of every variety and other financial institutions.
In the last two years, the Financial Services Policy Committee has worked closely with the New England congressional delegation, especially those in high-ranking positions on the key committees of jurisdiction in the U.S. House and Senate, to promote policies that will enhance the viability of financial services as a critical regional economic driver. Some examples of recent advocacy activity are detailed below. For more information about the New England Council Financial Services Policy Committee, please contact Michele Jalbert at mjalbert@newenglandcouncil.com.
For nearly three decades, money market funds have served as a cost-effective means for a wide array of investors to achieve market rates of return, while promoting stability of principal and liquidity of their investment. Money market funds are highly regulated, and serve as a crucial source of short-term financing, especially in the recovering U.S. economy, where cash flow for the government, employers and others may be uneven.
In October 2010, the President’s Working Group on Financial Markets proposed that money market funds shift from a the standard $1 per share valuation, to a floating Net Asset Value (NAV). This proposal was designed to help shareholders better understand the risk of investing Members of The New England Council’s Financial Services Committee grew concerned that, while well-intentioned, the floating NAV proposal would have serious consequences for an important mechanism that is helping facilitate our nation’s fragile recovery.
In a letter to SEC Chairman Mary L. Shapiro, the Council outlined its concerns. In particular, the letter expressed concerns that states and municipalities around our region could face a contraction of available financing, just at a time when they are struggling with some of the tightest budget restrictions in memory. The letter noted that the consequences of a move to a floating NAV are multifold, including administrative costs for money market funds, administrative burden for shareholders, and a reduction in available funds for such expenses as corporate operating needs, infrastructure projects, and other municipal cash needs.
As Congress works to balance the federal budget and eliminate the deficit, some leaders in Washington have proposed eliminating tax incentives for individual retirement savings, such as in 401k’s, IRAs and other private retirement plans. The New England Council’s Financial Services Committee, along with other regional leaders in the financial services industry, are concerned about the potentially devastating long term consequences of such a measure. In June 2011, the Council wrote to members of the New England Congressional delegation to express its concerns and outline the long-term benefits of encouraging Americans to save for retirement by deferring taxation on retirement savings until the funds are withdrawn years later. The Council stressed that the current tax deferral for savings not only promote individual financial self-sufficiency, but also reduce the burden on our already strained government entitlement systems in the long run. The Council also has concerns that if there is less incentive to invest in retirement savings accounts, there would be a significant impact on the financial services industry, which plays a large role in the New England economy.
IIn the fall of 2011, Congressman Richard Neal (D-MA) and Congressman Jim Gerlach (R-PA), members of the influential House Ways & Means Committee, released a draft concurrent resolution expressing the sense of the Congress that our current tax incentives for retirement savings provide important benefits to Americans to help plan for a financially secure retirement. The Council again wrote to members of the New England delegation, urging them to co-sponsor this resolution to express their support for this important issue.
As major tax changes faced the industry at the close of 2010, the Council successfully advocated for maintaining the existing tax rate on capital gains and dividends. In its advocacy efforts, the Council urged Congress to maintain the current tax rates in order to encourage investment in businesses, which would in turn grow and create new jobs. The Council also noted that higher tax rates on dividends will have a significant impact on seniors, as seniors are far more likely than any other investor group to own stocks which pay dividends.
The active financing income exception was also due to expire at the end of 2010. The Council urged Congress to extend this particular provision to ensure that companies that are headquartered in the U.S., but earning certain types of banking or finance income in other countries, receive equal tax treatment cross-nationally.
As the largest overhaul of financial services regulation in decades was debated in the 111th Congress, the committee developed a set of financial regulatory reform principles that were effectively advocated through a series of letters, one on one visits with key staffers and congressional members and op-eds. Once the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, the Council also held several events to educate members about its implementation, including a briefing with Assistant Treasury Secretary Neal Wolin, and a special briefing for the Financial Services Committee on some of the specific provisions of the new law.
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