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NSPA on economic growth.

NSPA recently submitted to the Senate Finance Committee a Statement for the Record regarding economic growth and the President's tax proposals. NSPA's statement appears below.

The National Society of Public Accountants consists of 21,000 individual members, most of whom are sole practitioners or partners in small-sized public accounting firms. NSPA members provide accounting, auditing, tax return preparation, representation before the Internal Revenue Service, tax planning, financial planning and managerial advisory services to an estimated six million individual and small business clients nationwide.

Because of the type of clients its members serve, NSPA is in unique position to address how the imminent expiration of several provisions of the Internal Revenue Code will affect mainstream America. Our members do not audit Fortune 500 companies; they do not prepare taxes for Wall Street brokerage houses. Rather, out members serve Main Street, USA - its farmers and small businesses, senior citizens and working families, struggling to make ends meet. When the nation's tax laws change, NSPA members are the first to see the impact on the average American. NSPA is therefore in a unique position to comment on how these people would be affected by the proposed tax law changes currently under consideration.

Specific Issues

Investment Incentives

Investment Tax Allowance. NSPA members believe that the Investment Tax. Allowance proposed by President Bush in his State of the Union message will provide a much-needed impetus for the investment decisions of the nation's small business owners. The current recession lingers, and signs that a recovery may be tentative or weak suggest that some stimulus is in order. Many small business owners remain concerned about the future, and their restraint in investment spending reflects this uncertainty. The narrowly-crafted investment tax credit recommended by the President will, in NSPA's opinion, encourage the investment so essential for our economy to recover.

Capital Gains. The National Society of Public Accountants recognizes the difficulties inherent in acting on capital gains in such a clearly partisan political environment. Nevertheless, we would encourage the Committee to attempt to reach some sort of bipartisan consensus on this important issue.

While NSPA respects the validity of arguments questioning the distributional effects of a capital gains differential, the National Society believes that such arguments miss the point. It is the nation's interest to stimulate economic growth and capital formation. It is also in America's interest to remain competitive in a global economy.

One of the essential requirements for meeting these goals is to stimulate the movement of capital at the lowest possible costs. In order to do this, we as a nation have no choice but to make the movement of capital worthwhile for those who possess it. As unpalatable as the means may seem, the end is critical to America's long term economic growth. It is essential for small business capital formation. If the nation is to remain competitive with its foreign trade partners, all of whom have considerably lower capital gains rates, it is vital that this issue be resolved. To the extent that capital gains does bestow a disproportional tax benefit on certain segments of society, we believe that the distributive effect on the entire economy justifies this disproportional impact.

In this situation, one is reminded of the apocryphal response given by Billy the Kidd when asked why he robs banks: "Because that's where the money is." America must "go to where the capital is." Those who refuse to respect this reality question not only the wisdom of capital gains., but of capitalism itself.

Savings Incentives

The National Society of Public Accountants applauds the intent behind President Bush's Family Savings Account (FSA) proposal. America's savings rate is abysmal, and this poor record of savings has an impact in many areas, from Federal deficits to the private cost of capital. American taxpayers need incentives to save more, and that is the principle behind the FSA.

However, we believe that the Congress should go one step further: restore the treatment of Individual Retirement Accounts (IRAs) to their status prior to the Tax Reform Act of 1986. As accountants and tax practitioners, NSPA members can attest first-hand as to the difference deductibility makers in encouraging the decision to open an IRA account. This Committee could achieve many of its long-term policy objectives by restoring the full deductibility of IRAs.

At a minimum, certain anomalies in the current system need to be eliminated. Current restrictions produce unfair results for too many Americans. For example, every working taxpayer who would otherwise qualify should be entitled to an IRA deduction regardless of their spouse's eligibility. Given current marriage failure rates, the present law simply leaves too many Americans without sufficient retirement planning.

Similarly, unless an employee is substantially vested in an employer's retirement plan, an IRA deduction should be permitted. In an age of considerable job mobility, mere participation in a pension plan is not a reliable indicia of adequate retirement savings.

While the National Society believes that the nation's long-term economic interests are best served by a full and complete restoration of IRA deductions , we urge the Committee to at least address these discrepancies in the current law.

Expiring Tax Provisions

One of the most important tax issues before this Committee, at least from the perspective of small business, is the expiring deduction for health insurance costs of self-employed persons - Section 162(l) of the Internal Revenue Code of 1986. Section 162(l) currently allows America's small entrepreneurs - sole proprietors, partners an S corporation owner/employees - to deduct 25% of their health insurance costs as a business expenses. By contrast, large corporations permanently enjoy a full 100% deduction for their health insurance expenses.

Once again, this deduction so critical to small business is slated to expire in a few short months. The annual ritual to extend this provision of the Code represents both bad tax policy and bad health care policy.

From a tax policy perspective, the disparity between the 25% deduction in Section 162(l) and the 100% deduction available to America's corporate giants is perhaps the most blatant example of discrimination against small business contained in the Internal Revenue Code. As a matter of basic fairness, sound tax policy dictates that parity be restored between "big business" and "small business" by increasing the 162(l) deduction to 100%. America's entrepreneurs deserve no less.

The nation's long-term health care policy is also ill-served by the status quo. With 37 million Americans uninsured and a disproportionate share of America's working uninsured employed by small businesses, the Federal government should be doing everything it can to encourage low-cost, private sector solutions to the problem.

Unfortunately, Section 162(l) does precisely the opposite. The 25% deduction is often inadequate to enable small business owners to justify the expense of health insurance coverage. Moreover, the uncertainty as to the deduction's future forces many to conclude that they should not risk implementing an insurance program.

Permanent extension and expansion of Section 162(l) is probably one of the most inexpensive options available to the Federal government for improving health insurance coverage in the United States. Mr. Chairman, NSPA is aware that this Committee, along with several of its subcommittees, has taken a keen interest in health care issues. If Section 162(l) is allowed to expire, there will be costs to the Federal government in terms of increases public expenditures for the medical care of then uninsured. Before concluding that the Federal government cannot afford to make this deduction permanent, we urge the Committee to consider whether it can afford not to do so.

As you know, President Bush included an extension of Section 162(l) in his FY 1993 budget proposal. We applaud the President for recognizing the importance of this issue to the American people. We ask the Congress to take his proposal one step further: make the deduction permanent and increase it to 100%.

Taxpayer Rights Provisions

House Budget Committee Chairman Leon Panetta (D-CA) has introduced legislation (H.R. 1485) to allow certified public accountants and enrolled agents to represent taxpayers in small cases before the U.S. Tax Court. The Internal Revenue Code defines a "small case" as one with less than $10,000 in disputed tax. (Code Section 7463).

NSPA believes that Congressman Panetta's bill will greatly simplify appearances before the Tax Court for many taxpayers. Instead of incurring the time and delay involved in retaining counsel, H.R. 1485 allows small case taxpayers to be represented by the one person who knows their tax situation best - their CPA or EA.

Since present law already permits CPAs and EAs to practice before the Tax Court if they pass a written examination, H.R. 1485 is a logical extension of existing practice rights. Because the formal rules of evidence and procedure (which the Tax Court examination tests) are waived in small cases the integrity of the system is in no way compromised.

More importantly, since the Internal Revenue Service is required to consider the hazards of litigation - to both the taxpayer and the government - in deciding whether or not to settle a case, Congressman Panetta's bill would essentially "level the playing field" for taxpayers in Appeals. In this respect, the National Society of Public Accountants views H.R. 1485 as both a logical extension of CPAs and EAs practice rights as well as an important procedural safeguard for taxpayers.

NSPA has actively supported this legislation and urges its consideration in your deliberations.


The National Society of Public Accountants appreciates the opportunity to express its views on these important issues. If the Committee requires additional information, NSPA stands ready to assist in any way possible. Related inquiries should be directed to Peter M. Berkery, JR., NSPA's Director of Federal Affairs & Tax Counsel.
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Title Annotation:Capital Corridors; National Society of Public Accountants' position on the Internal Revenue Code amendments
Author:Berkery, Peter M., Jr.
Publication:The National Public Accountant
Article Type:Column
Date:Apr 1, 1992
Previous Article:Profile of the 21st century NSPA member.
Next Article:Position statement on the 150 semester hour rule.

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