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NSPA testimony on tax aspects of the budget.


NSPA Testimony on Tax Aspects of the Budget

I appear before you today on behalf of the Federal Taxation Committee of the National Society of Public Accountants. NSPA represents some 23,000 independent accountants who provide accounting, tax preparation, tax planning, financial planning and managerial advisory services to an estimated 4.5 million individuals and small businesses nationwide.

Because of the type of clients its members serve, NSPA is in a unique position to address how the tax aspects of the fiscal year 1992 federal budget will affect mainstream America. Our members do not audit Fortune 500 companies; they do not prepare taxes for Wall Street brokerage houses. Our members represent Main Street, U.S.A.--its 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 their impact on the average American.

We therefore greatly appreciate the opportunity to appear before you today and share with you our experiences as they relate to a number of important tax issues involved in this year's budget debate.

Section 162(1)

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(1) of the Internal Revenue Code of 1986 (Code). Section 162(1) 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 at the end of this year. 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(1) 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 businesses" by increasing the 162(1) 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(1) currently does precisely the opposite. The 25% deduction is often inadequate to enable small businesses to justify the expense of providing employee health insurance coverage. Moreover, the uncertainty as to the deduction's future forces many businesses to conclude that they should not risk implementing an insurance program.

Permanent extension and expansion of Section 162(1) is probably one of the most inexpensive options available to the federal government for improving health insurance coverage in the United States. Mr, Chairman, I know that this committee, along with several of its subcommittees, has taken a keen interest in health care issues. If Section 162(1) 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 extend this deduction, I urge the committee to consider whether it can afford not to do so.

President Bush included another one-year extension of Section 162(1) in his 1992 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%.

Before leaving this matter, I should note that the National Society would like to thank Congressman Byron Dorgan (D-SD) for his stalwart leadership on this issue. Over the past several years, Congressman Dorgan has been a consistent champion of Section 162(1); our members and their clients greatly appreciate his efforts.

We would also like to thank Congressmen Ed Jenkins (D-GA), Harold E. Ford (D-TN), Fred Grandy (R-IA) and Rod Chandler (R-WA) for joining Congressman Dorgan in co-sponsorship of H.R. 784, legislation which would achieve the objectives I've just discussed.

Family Savings Accounts

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 makes 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 the spouse's eligibility. Given current marriage failure rates, the present law simply leaves too many Americans without sufficient retirement savings.

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 planning.

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 would urge the committee at least to address these discrepancies in the current law.

Tax Simplification

Although not specifically mentioned in the President's proposal, the National Society believes it is possible that tax simplification could be included in this year's budget process. Therefore, before closing, we would like to touch briefly on a few important aspects of this very critical matter. I also should point out that NSPA's proposals with respect to IRAs and health insurance deductions for self-employeds certainly would simplify the annual computations of affected taxpayers.


For some time now, NSPA has taken advantage of opportunities such as this to advocate what it calls a "threshold concept." Under the threshold concept, individuals and small businesses not meeting specified income or net worth threshold amounts would be relieved of the more burdensome intricacies of a particular law or regulation, being permitted instead to adhere to a simpler set of rules, allowing for "any reasonable method" of compliance.

NSPA has advocated the application of its threshold concept before the Internal Revenue Service with respect to the definition of "activity" under the passive loss rules (54 FR 20606) and the definition of "one class of stock" under the S corporation provisions of the Code (55 FR 40870). As this committee continues its important work in the area of simplification, we urge you to keep the threshold concept in mind.

Tax Court Bill

As you may be aware, Representative Leon Panetta (D-CA) has recently introduced legislation, H.R. 1485, to allow certified public accountants and enrolled agents to represent taxpayers in "small cases" before the Tax Court. The Code defines a small case as one in which the tax in dispute is less than $10,000. (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. Under Congressman Panetta's proposal, everybody gains: taxpayers, practitioners, Tax Court dockets and even simplification-minded tax writers. We urge this committee to give H.R. 1485 every possible consideration.

Mr. Chairman, the National Society submitted testimony to this committee last April in response to your request for tax law simplification proposals. I would refer the committee to that testimony for further elaboration on these and other NSPA tax simplification proposals.


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.
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Title Annotation:Capital Corridors; National Society of Public Accountants
Publication:The National Public Accountant
Article Type:transcript
Date:Jun 1, 1991
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