NSPA Testimony on Tax Aspects of the Budget

The National Public Accountant, June 1991 | Go to article overview

NSPA Testimony on Tax Aspects of the Budget


CAPITOL CORRIDORS

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. …

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