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NSPA testifies on expiring tax provisions.

Good afternoon. My name is Peter Berkery. I am the Director of Federal Affairs & Tax Counsel for the National Society of Public Accountants. NSPA 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 IRS, tax planning, financial planning and managerial advisory services to an estimated 6 million individual and small business clients nationwide.

Because of the type of clients its members serve, NSPA is in a 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, our members serve Main Street, U.S.A.--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.

We appreciate the opportunity to appear before you today and share with you our experiences as they relate to the so-called "extenders."

Expiring Provisions of

Concern to NSPA

Health Insurance Deduction for

the Self-Employed

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 and S corporation owner/employees -- to deduct 25% of their health insurance costs as a business expense. 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 increased public expenditures for the medical care of the 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 1992 budget proposal. NSPA remains hopeful that he will take similar steps for FY 1993. 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%.

Low Income Housing Credit

From the perspective of NSPA's members, the low income housing credit seems to have been an effective tool in stimulating the intended types of investment behavior. To our members preparing returns for clients entitled to the credit, it is apparent that the tax advantages were one of the prime factors in motivating them to invest in low-income rental housing. Quite simply, it is our expectation that, if the credit is allowed to expire, those entitled to claim it will simply invest elsewhere. NSPA therefore believes that, if the Congress wishes for the nation to continue to enjoy the benefits which investment in low-income housing provides, retention of the credit is necessary.

Employer-Provided Educational


NSPA members view the Section 127 exclusion for employer-provided education benefits as important for many reasons. First, it helps small business owners, who may be perceived as riskier sources of employment, in attracting potential workers. It also gives entrepreneurs a way to help their employees seek additional training and education.

Next, the Section 127 exclusion encourages all businesses, large and small, to invest in their most valuable asset: their employees. The international competitiveness aspects of maintaining an educated workforce are obvious. Since our trading partners clearly encourage education, the United States cannot remain competitive unless it does likewise.

Finally, as members of a profession dedicated to high standards of technical competence, NSPA members believe that the need for continuing education augurs in favor of retaining Section 127. The service sector of our economy exists in an ever-changing, high-tech, information age. The need for continuing education on a life-long basis has become increasingly apparent. Section 127 thus is an important tool both in terms of maintaining competitiveness abroad and proficiency at home.

Revenue Offsets

NSPA recognizes that, in order to successfully advocate the retention of any expiring tax provisions, budgetary realities impose the obligation of recommending revenue offsets. The National Society's members have been working in earnest to develop relevant proposals for this Committee's consideration. We believe that we will soon be in a position to recommend specific offsets for the provisions we have advocated retaining. Our deliberations continue, however, and we fell that at this juncture it would be premature to offer our suggestions for public scrutiny.

We would, however, like to make some general observations about the offsetting process.

First, specifically with regard to the health insurance deduction for self-employeds, it is very difficult for most small business owners to comprehend why it is incumbent upon them to specify a revenue offset for this deduction. The drive to extend Section 162(1) is not the product of a special interest group seeking preferential legislation from Washington. Rather, it represents average Americans seeking from their government the same treatment already bestowed by it upon big business. These taxpayers just do not understand why it is up to them to find a way to pay for what is, in the end, only fair. Because NSPA members encounter this sentiment among your small business constituents, we feel obligated to share it with you.

Next, we believe it is possible that some opportunities for revenue offsetting may arise as broader changes to the tax laws are contemplated by Congress and the Administration. The fate of the extenders will not be decided in a vacuum, and NSPA believes offsets may present themselves as other tax legislation is considered. We encourage this Committee to remain open to that possibility.

Along these lines, it is entirely possible the present search for revenue raisers could become moot if the 1990 Budget Agreement itself is revisited. We hope this Committee will keep the extenders in mind when such broader issues are discussed.

Finally, as accountants with an obligation to act as independent observers, we would be remiss if we failed to point out a major concern faced by many involved in the offsetting process. Some who have been able to unearth effective revenue offsets may be reluctant to share them for fear of having their hard work applied to proposals other than their own. We therefore would recommend, Mr. Chairman, that you give serious consideration to establishing some ground rules for protecting those proposals which are put forth. Although competing interests would certainly need to be balanced and as unorthodox as such an approach may seem, we believe that action in this regard on your part would facilitate the exchange of ideas and information necessary to resolve these difficult issues.


In closing, Mr. Chairman, I would like to again thank you for the invitation to appear before the Committee today. The National Society of Public Accountants applauds your leadership and that of the members of this Committee in addressing the important issues discussed today. NSPA stands ready to assist you in your efforts in every way possible, and remains committed to candidly and objectively exploring revenue offsets with you and other members of this Committee.
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Title Annotation:Capitol Corridors; National Society of Public Accountants
Publication:The National Public Accountant
Article Type:Transcript
Date:Mar 1, 1992
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