While President Donald Trump often emphasizes job creation, there’s a particular occupation he aims to do away with: Tax preparers.
“I intend to put H&R Block out of business,” Trump stated during his campaign.
“H&R Block might not be thrilled about it,” he added again in February.
Trump is optimistic that his tax proposal will streamline the filing process to the extent that individuals will find it effortless to manage their own taxes. “If we can condense it to one page,” Trump mentioned at a recent press conference. “In some situations, it could extend to two pages.”
He believes it will be so simplified that some taxpayers will no longer require accountants. Yet, tax professionals don’t appear to be particularly concerned.
Trump targets a substantial sector: The Bureau of Labor Statistics indicates there are approximately 70,000 tax preparers in the U.S., although this could be an understatement. (H&R Block (HRB) claims to have 70,000 “tax professionals” across its franchises, not counting the tax attorneys at large firms such as PricewaterhouseCoopers and Accenture.) A study from an economist at the University of California, Los Angeles reveals that Americans spend about $200 billion annually strictly on federal income tax preparation.
Despite Trump’s assertion that professional tax preparers may become obsolete, the GOP’s tax plan will still provide ample work for them.
The so-called Big Six’s Unified Framework — a nine-page document outlining principles agreed upon by the White House and Congress — implements some adjustments aimed at simplifying the tax code. It proposes to reduce the existing seven individual tax brackets to three, eliminate “most” itemized deductions, and abolish the alternative minimum tax along with the estate tax.
For corporations, the plan suggests reducing the overall corporate tax rate from 35% to 20%, while also eliminating some deductions and exemptions for specific sectors.
Related: The White House explains its reasoning: Why corporate tax reductions result in higher wages
However, these changes do not impact the majority of Americans, as only 30% of them opt to itemize deductions instead of taking the standard deduction, as reported by the Tax Foundation.
Concurrently, the plan introduces additional complexities that could complicate tax filing further.
For instance, it aims to enlarge the child tax credit and introduce a $500 credit for dependents such as elderly parents, while retaining exemptions and deductions for mortgage interest, retirement savings, higher education costs, and charitable contributions. (The non-partisan Tax Policy Center has criticized the GOP’s promise of enabling individuals to file taxes on a postcard, arguing that numerous worksheets would still be necessary to accurately complete that postcard.)
On the corporate end, the Big Six plan creates a new loophole that allows businesses to deduct their new investments. While these exemptions may offer potential benefits, they do not simplify the taxation framework.
Meanwhile, the GOP injects a significant layer of complexity by proposing a 25% tax rate for “pass-through” businesses — which encompass sole proprietorships and partnerships — instead of the top individual tax rate of 39.6%. This lower rate is likely to encourage businesses to reorganize themselves as pass-through entities when feasible.
“Whenever there’s a rate differential for different types of income, tax planners rejoice,” notes Joe Thorndike, a tax historian with the non-profit research organization Tax Analysts. “This creates tremendous opportunities for reorganizing.”
Trump’s administration contends that by slashing the corporate tax rate to 20%, it will diminish the appeal for large multinational corporations to minimize their taxes through complicated accounting tactics like transfer pricing and earnings stripping. Many economists agree with this perspective.
Related: The IMF states Trump won’t achieve tax reform
“A slightly lower rate would reduce the incentives for profit shifting and simultaneously enhance small firms’ competitiveness against larger ones,” says Fatih Guvenen, a University of Minnesota professor who has analyzed corporate tax behaviors.
However, another facet of the GOP plan — labeled “territorial taxation” — would render profits generated overseas tax-free forever, a situation that will always be more advantageous than even the lowest corporate tax rate. This creates a counter-incentive for classifying income as foreign instead of domestic, explains Steven Rosenthal, a senior fellow at the Tax Policy Center.
“Certain components of the Big Six framework will foster new strategies for tax avoidance,” Rosenthal asserts.
Thus, even if major corporations cease to invest in complicated accounting techniques to shift their profits, they will still require tax lawyers for a variety of emerging business scenarios.
“I’m not particularly anxious that the tax industry is on the verge of substantially changing,” remarks Ramon Camacho, a principal in the international tax practice at RSM US. “However, there will invariably be new tasks to undertake. They might just pivot to litigation!”
And what about firms like H&R Block? They have proactively developed software that enables taxpayers to file their returns from the comfort of their homes without the need for human intervention. Currently, they seem unconcerned about potential deregulation that could eliminate their jobs. Any modification to the tax code invariably creates a demand for professional advice.
“The tax system could be simplified, but there’s no possibility that it would ever be straightforward, given the complexity of the U.S. tax code,” commented H&R Block CEO Tom Gerke during the company’s latest earnings call. “With every reform attempt, we inevitably end up adding more dimensions to it.”
