Congress Mulls Tax Breaks for Disaster Readiness

As Congress spends much of this year debating the many paths to reauthorize key Tax Cuts and Jobs Act provisions before they expire at the end of 2025, it will also try to address the rise in catastrophic climate events and their cost on the American taxpayer.

Twenty-seven individual U.S. weather events caused $1 billion or more in damages in 2024, totaling $182.7 billion, according to the National Centers for Environmental Information (NCEI), a branch of the National Oceanic and Atmospheric Administration. As the NCEI stated: “This total places 2024 as the fourth-costliest year on record, trailing 2017 ($395.9 billion), 2005 ($268.5 billion), and 2022 ($183.6 billion). Adding the 27 events of 2024 to the record that begins in 1980, the United States has sustained 403 weather and climate disasters for which the individual damage costs reached or exceeded $1 billion. The cumulative cost for these 403 events exceeds $2.915 trillion.”

The insurance industry, among others, uses historical data provided by the NCEI to better understand and underwrite the risks caused by weather events.

When a natural disaster strikes, the federal government can provide money through the Federal Emergency Management Agency’s (FEMA) disaster relief fund directly to the impacted state(s). This money can reimburse for things like debris removal or overtime costs for first responders who work during the disaster. It can also provide direct assistance to individuals to help them rebuild or mitigate for future disasters.

For example, Hurricanes Milton and Helene, which both hit the Southeastern United States last fall, respectively cost $34.3 billion and $79.6 billion, according to NCEI data. The Biden administration approved $1.8 billion to be used immediately for recovery efforts in early November. This money came from FEMA’s disaster relief fund. Then, in late 2024, Congress approved a $100 billion emergency funding package to not only address the hurricanes but also the March 2024 bridge collapse in Baltimore and other storms. This money was unplanned and financed through a combination of federal budget reallocations and new borrowing, which may require future adjustments to the federal budget to address the increased debt.

The main questions facing House and Senate Republicans during the second Trump administration are how much the federal government should contribute to disaster relief; whether the funds should be contingent on states meeting specific benchmarks; and whether to offer tax incentives for hardening properties against a natural disaster, such as by infilling basements in flood zones, installing flood openings, or creating fuel breaks to curb the spread of a wildfire.

Two new pieces of legislation introduced by representatives from California and Florida address the tax incentive question.

Introduced by Reps. Mike Thompson (D-Calif.) and Doug LaMalfa (R-Calif.) in February, HR 1105 is divided into two parts. The first would create a new pre-disaster grant program to provide grants up to $10,000 to individuals under the Stafford Disaster Relief and Emergency Assistance Act. The grants would have to be used for mitigation efforts that have been proven to lower risk, including raising the elevation of a property given to flooding and installing tempered glass in fire-prone areas. Qualified efforts would ultimately be determined jointly by FEMA, the National Association of Insurance Commissioners, and the insurance industry—including agents and brokers. The second part would make state mitigation grants tax-free, as federal mitigation grants already are under the tax code. The Council and the American Property Casualty Insurance Association have both endorsed the bill.

HR 440, introduced in January by Reps. Laurel Lee (R-Fla.) and Jared Moskowitz (D-Fla.), would allow homeowners to establish a “READY Account” funded with pretax dollars, like a health savings account. The legislation lists 12 mitigation efforts approved by the Federal Emergency Management Agency that would qualify for the tax break, including installing impact-resistant windows, elevating the home, and adding flood walls. It has been endorsed by the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the National Association of Insurance & Financial Advisors.

Neither of these options offer one complete solution to addressing increasingly costly weather events. And it’s difficult to see their path forward while other time-sensitive legislation takes up all the oxygen in the room. But both are also worthwhile measures with bipartisan and industry support, making them worth discussion.