A life insurance trade group is expressing its concern over an Obama Administration proposal to tax annuity income to fund Medicare.

The American Council of Life Insurers (ACLI) in a letter sent Feb. 24 to U.S. Treasury Secretary Tim Geithner suggests that the proposed 2.9% tax on annuities will hurt Americans’ ability to save for retirement. The tax would apply to interest, dividends, annuities, royalties and rents collected by individuals earning more than $200,000 per year and families earning more than $250,000.

“I would encourage you to reevaluate this proposal that increases taxes on an important retirement security tool,” wrote Frank Keating, ACLI president.

Revenue generated from the tax would fund the Medicare Hospital Insurance trust fund and was included in the Patient Protection and Affordable Care Act.

“Currently, Americans face unprecedented difficulties securing their retirement income in an environment that has shifted longevity, savings and other retirement risks onto the individual,” Keating said in the letter. “In such a landscape, policy-makers should not create a disincentive for annuity products that help Americans address these risks.”

As an alternative, Keating wants Congress to create tax incentives for people preparing for retirement, which would encourage them to use tools like annuities to develop lifetime income streams.