While President Donald Trump emphasizes job creation, there’s one type of job he aims to eliminate: tax preparers.
“I intend to put H&R Block out of business,” Trump declared during his campaign.
“H&R Block likely won’t take it well,” he remarked again in February.
Trump is optimistic that his tax reform will make the filing process so straightforward that individuals can handle it easily. “If we can fit it on one page,” Trump stated at a Monday press conference. “In certain cases, it might be two pages.”
In fact, Trump believes it will be so simplified that some taxpayers might not need accountants anymore. However, tax professionals don’t appear particularly concerned thus far.
Trump is targeting a sizable industry: The Bureau of Labor Statistics states there are approximately 70,000 tax preparers in the U.S., a number that may be conservative. (H&R Block (HRB) claims to employ 70,000 “tax professionals” in its franchises, not accounting for numerous tax attorneys at large firms like PricewaterhouseCoopers and Accenture.) A study from an economist at UCLA estimates Americans spend $200 billion annually just to file their federal income taxes.
Yet notwithstanding Trump’s commitment to make professional tax preparers redundant, the GOP’s tax plan will still provide them with substantial work.
The so-called Big Six’s Unified Framework — a nine-page principle outline agreed upon by the White House and Congressional leadership — takes steps to simplify the tax code. It would reduce the existing seven individual tax brackets down to three, eliminate “most” itemized deductions, and abolish both the alternative minimum tax and the estate tax.
Regarding corporate taxation, it proposes lowering the overall corporate tax rate from 35% to 20%, while removing several deductions and exemptions for specific sectors.
However, these adjustments do not significantly impact most Americans: only 30% choose to itemize rather than opt for the standard deduction, as reported by the Tax Foundation.
Simultaneously, the plan anticipates additional alterations that would complicate tax filing.
For instance, it expands the child tax credit and introduces a $500 credit for dependents such as elderly parents, while keeping exemptions and deductions for mortgage interest, retirement savings, higher education, and charity intact. The non-partisan Tax Policy Center has criticized the GOP’s assertion that it will enable individuals to file taxes on a postcard, noting that several worksheets would still be needed to accurately complete that postcard’s sections.
On the corporate side, the Big Six plan presents a new loophole, allowing businesses to expense their new investments. All these exemptions might serve as incentives, yet they do not simplify the tax code.
In the meantime, the GOP introduces complexity by proposing that “pass-through” businesses, which include sole proprietorships and partnerships, be taxed at a rate of 25%, instead of the top individual tax rate of 39.6%. This lower rate will encourage businesses to reorganize themselves as pass-through entities if feasible.
“Any time you have a rate differential for different income types, every tax planner perks up,” states Joe Thorndike, a tax historian at the non-profit research organization Tax Analysts. “Such a situation creates vast opportunities for reorganization.”
Trump’s team contends that by reducing the corporate tax rate to 20%, it will make it less appealing for large multinational corporations to minimize their taxes through convoluted accounting strategies like transfer pricing and earnings stripping. Many economists concur.
Related: The IMF suggests Trump’s tax reform may not materialize
“A slightly lower rate would diminish incentives for profit shifting and also aid smaller firms in competing more effectively with larger entities,” remarks Fatih Guvenen, a University of Minnesota professor who has analyzed corporate tax practices.
However, another facet of the GOP plan — termed “territorial taxation” — would make taxes on earnings generated overseas permanently tax-free, which remains a more attractive option than even the minimal corporate tax rate. This creates a counter-incentive to categorize income as foreign rather than domestic, explains Steven Rosenthal, a senior fellow at the Tax Policy Center.
“Certain elements of the Big Six framework will foster new opportunities for manipulation,” Rosenthal notes.
Hence, even if major corporations cease their investment in complex accounting strategies to shift profits, they will still require tax lawyers for numerous forthcoming business lines.
“I’m not overly concerned that the tax industry will undergo drastic changes,” asserts Ramon Camacho, a principal in the international tax division at RSM US. “There’s always something else to tackle. Just pivot to litigation!”
And regarding companies like H&R Block, they have been developing software that permits taxpayers to file from home without any human assistance. In the meantime, they don’t appear particularly anxious about Congress potentially deregulating them out of business. Any alteration in the tax code invariably creates a demand for professional guidance.
“It could be simplified; however, there’s no scenario where the U.S. tax code ends up simple,” remarked H&R Block CEO Tom Gerke during the company’s latest earnings conference call. “Each time we enter a reform process, we somehow end up adding to it as well.”
