Once in the subaccount, the money is invested and can grow tax-free until the couple designates eligible groups to receive it, at which point there isn't any deduction.
In his budget, the President proposed slapping taxes on new sales of variable annuities. (People who already own annuities will have a one-time opportunity to switch from one variable contract to another, tax free.) Clinton's levies include taxing income and capital gains if the holder transfers assets from one subaccount (a mutual-fund-type account) to another.