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Tax Reform and Fairness – A Necessary Balance


We are fast approaching what many believe is crunch time for tax reform. There is a renewed push by the White House and Congress to enact tax reform by year’s end. President Trump is urging Congress to “move fast,” while the House and Senate work to identify a process to make it possible.

As the debate intensifies, policy goals will be fleshed out, trial balloons will be floated in the media, and key lawmakers will get down to business in assembling a package of reforms to the tax code that can pass muster in both chambers.

A mainstay of the tax reform discussions is a call for cuts in the corporate tax rate. Since the vast majority of U.S. businesses operate as pass-through businesses, tax reform plans have also applied the benefits of lower tax rates to certain pass-throughs. These pass-throughs, including S corporations and partnerships, don’t pay taxes themselves, but pass their earnings through to their owners who pay taxes at their individual rates.

Some in Washington have suggested that professional services pass-throughs – such as accounting firms – should not be treated like other businesses because of the mistaken belief they don’t help drive the economy. We know that’s not the case.

Accounting firms play an important role in the nation’s economic growth and job creation. In fact, the U.S. Bureau of Labor Statistics (BLS) reports for 2014 that there were more than 1.3 million accountants and auditors employed in the United States. BLS also forecasts that employment of accountants and auditors is projected to grow 11 percent through 2024, with 142,000 more jobs, faster than the average for all occupations. In 2016, payroll for CPA firms totaled nearly $40 billion, according to the BLS.

Fairness should also be a consideration in how Congress addresses tax treatment of service companies. It makes no sense to distinguish pass-through businesses and partnerships – such as accounting firms – from companies in other sectors merely because of the business’s choice of entity. This is a simplistic approach that does not reflect that in today’s economy, professional service pass-through firms require significant investment in tangible and intangible assets as they compete in the global environment. By unfairly disadvantaging professional service pass-throughs, the incentive to start or grow a business is diminished, with a corresponding loss of jobs and reduction in wages.

In testimony before the U.S. Senate Finance Committee on September 19, the AICPA stressed that “professional service firms are an important sector in our economy and heavily contribute to the nation’s goals of creating jobs and better wages.” 

As part of our advocacy for sound tax policy, the AICPA several years ago developed a framework of guiding principles of good tax policy. Topping that list is the principle of equity and fairness, which states that similarly situated taxpayers should be taxed similarly. We often reiterate the view that equity and fairness is an essential attribute of a good tax system, recommending that equity and fairness be given due consideration in both the making and administration of tax laws.

In the final analysis, and in the interest of fairness, the nation’s accounting firms should be treated no differently than any other job and wage generator.

It is a common refrain in our nation’s capital that tax reform is needed now more than ever. Yes, that is true. And it has been for some time. But let's be certain that fairness remains a central theme in how we go about it. 

Barry C. Melancon, CPA, CGMA, President and CEO, American Institute of CPAs.


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