Thursday, September 17, 2015

Republican Tax Plans: How will they Impact CPAs & Tax Preparers?

I'm sure many of you watched the admittedly entertaining spectacle that was the second Republican Presidential Debate of 2015 last night. During that 3 hour long information & misinformation packed program, many of the candidates touched on their plans for the outdated, ineffective, & altogether noncompetitive tax code America has been saddled with since it was largely enacted in 1986. Some of the prospective Presidents proposed adjustments to the current system of Progressive Taxation that has been in place since the Revenue Act of 1913 officially established the income tax we Americans know today. Different candidates proposed a Flat Tax on income, while others scrapped income taxation altogether for a Fair Tax. What do all of these mean & what affect will they have on the professionals that spend their entire careers working to help average Americans legally deal with the taxation system?

Before delving into the affect these changes may have on CPAs & tax preparers across the country, we need to discuss exactly what these candidates are proposing. Changes to our current Progressive Taxation system of income tax include taxing carried interest, which is basically a performance fee often paid to large fund managers, at normal rates. This change will largely affect the wealthier taxpayers who are currently able to pay taxes on these performance fees at a lower rate than they would had the carried interest been normal wage income. Candidates who advocate a Flat Tax on income are for a single rate for all taxpayers no matter what their income, but this rate varies depending on the candidate (Rand Paul is for 14.5%, while Ben Carson is for somewhere between 10 & 15%). Some of these candidates, including Ted Cruz, also advocate for significant government spending reductions to go along with this Flat Tax, one of which is the closure of the IRS. Finally, the Fair Tax advocated by candidate Mike Huckabee replaces a tax on income with a 23% tax on all purchases.

Now that we know what tax plans have been supported by the Republican candidates who have publicly discussed reforming taxes, how would these plans affect those who administer the tax code & work with Americans everyday to help them navigate through financial & tax decisions? First of all, many of the more radical changes to the tax code advocated last night would abolish the "evil" Internal Revenue Service, or IRS. This crucial federal department is responsible for the collection of the bulk of federal government revenue, which is the source of funds that keep the government functional & working. Abolishing this organization would not only seriously hamper the government's ability to collect tax revenue & monitor the taxpaying (or avoiding) activities of citizens & corporations, it would, as of 2014, put over 84,000 men & women out of work (see page 76 for statistics). The gutting of the tax code would also destroy the currently thriving tax preparation industry, which employed over 65,000 people in 2012 & has large seasonal hiring surges that temporarily increase that figure. The tax preparation companies often give on-the-job training that allows temporary workers to learn important skills that can help them land permanent jobs in the industry. Not least of all, accounting firms that employ CPAs would take a large hit from a massive tax code change, especially in the corporate tax code. Many CPAs at large & small firms alike specialize in taxation & would immediately either have to relearn a new specialty within the profession or switch professions entirely.

As much as candidates from both sides of the aisle, Republican & Democrat alike, love to boast about how they would reform America's broken tax code, most of them have completely ignored the impacts those changes would have on a large subset of professionals that many Americans rely on at least once a year to help them through important financial & tax decisions. Please share this with any accountant, tax preparer, or CPA friends or family you may have, as all should understand what these potential changes could mean for their professional lives. As a CPA myself, I know what kind of impact these changes can & will have. Thanks for reading & please subscribe to the Enky blog for more professional content!

Yours truly,

Mike Coté
CPA & CEO/Co-Founder, Enky Inc.

1 comment:

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