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Economists call for trashing the QBI deduction

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2 years ago

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A sizable tax deduction for the qualified business income of pass-through entities faces potential expiration next year. A panel of university economists and one of the most influential think tanks in Washington said lawmakers should either make big changes or let it go away.

Five economists were asked last month at a Brookings Institution event about which action they hope the next Congress and White House will take on the many parts of the 2017 Tax Cuts and Jobs Act that will sunset at the end of next year. Four of the economists called for the elimination of the so-called 199A deduction for pass-through income. The fifth spoke more generally, advocating for “rescinding some of the tax-rate cuts in the upper part of the income distribution,” which is a common criticism of the impact of the pass-through deduction.

Policy experts, financial advisors, tax professionals and their clients may know the deduction better as “the small business pass-through giveaway,” as the moderator, David Wessel, a Brookings senior fellow in economic studies who is the director of the Hutchins Center on Fiscal and Monetary Policy, referred to it on the panel.

“‘Small business’ with, like, quotes,” Eric Zwick, a professor of economics and finance at the University of Chicago Booth School of Business, said to laughter from the audience. “We should be very clear these [are] like, closely held, potentially quite large businesses with, like, very, very rich owners, many of them. So I think we should be very careful about using that word ‘small’ in a value-sensitive way.”

READ MORE: The QBI deduction’s impact is as murky as its rules, report finds

The others advocating for getting rid of the deduction of up to 20% of the qualifying pass-through income included William Gale, co-founder and co-director of the Brookings and Urban Institute’s Tax Policy Center; Kimberly Clausing, the chair of tax law and policy at the UCLA School of Law; and Naomi Feldman, an associate professor of economics at the Hebrew University of Jerusalem’s Department of Economics, who called the 199A break a policy “that was really put in to placate the small business lobby” that “was really done for political purposes.” The speakers pointed out the high cost of extending the expiring provisions of the law — which could hike the federal budget deficit by more than $4 trillion over the next decade.

“I think the main thing is we’ve got these huge budget deficits, as far as the eye can see,” said the fifth economist on the panel, Williams College Chair of Economics Jon Bakija. “We need to do some things that are going to restore enough revenue to pay for the government. And I think rescinding some of the tax rate cuts in the upper part of the income distribution is probably worthwhile for that purpose.”

With this year’s election looming in the background as the determining factor on what will happen to the Tax Cuts and Jobs Act on its deadline date at the end of 2025, the economists acknowledged that the voters and, ultimately, the elected officials would get the final say. While liberal and left-leaning think tanks have slammed the 199A deduction as too heavily beneficial to the wealthy at a large price tag estimated to be as much as $608 billion on its own through 2033, right-leaning and conservative groups argue that the policy boosts small businesses and provides parity for the rates paid by pass-through entities as compared to corporations.

Limits on the deduction to, say, business owners with less than $500,000 in total income “would result in a tax increase on one of the major sources of jobs in our nation, directly hurting workers and the economy,” according to a report earlier this year by the U.S. Chamber of Commerce. The business advocacy organization has called for legislation making the deduction permanent.

READ MORE: QBI tax break — should it stay or should it go?

However, the complicated existing guidelines relating to the types of businesses that can get the deduction and the levels of qualifying income that make them ineligible has contributed to the fact that there are many entrepreneurs who could have claimed the deduction haven’t applied for it, according to a February report by the nonpartisan Congressional Research Service. The available research indicates that “the deduction may have stimulated no more than a modest rise in investment” during its first two years in effect in 2018 and 2019, the report said.

“It is unclear whether the deduction, combined with the temporary individual income tax cuts under the 2017 tax law, has boosted demand for labor in the noncorporate sector,” it said. “The deduction’s complexity increases the cost of compliance for taxpayers who might benefit from it, although it is not clear to what extent. There is also uncertainty about which businesses qualify for the deduction. Some lower-income taxpayers may not claim it because of the complexity and compliance cost. Many upper-income pass-through business owners may claim the deduction, but only with the assistance of tax professionals.”

Amid that murky picture of the impact of the policy, the economists on the panel shared some suggestions for potential adjustments to the deduction.

“You could change the deduction, I guess, if you wanted to keep it and make it cost less,” Zwick said. “You could make it a smaller deduction. But there are lots of phaseouts and phase-ins of some of the rules. The wage and capital requirements there, some of those could be adjusted to basically exclude more firms. I think there are a lot of firms that are on the barrier between the specified service, skilled types that probably shouldn’t get it, versus like other types of firms that, for some reason, like, we think should get it. Those could be tweaked to, like, basically shrink the number of firms that benefit from the preferential rate.”

A shift in focus of the tax breaks for pass-through income could further alter the impact of the deduction, Gale said on the panel.

“The general approach would be not to cut the rate — which is what the deduction does — but to switch it to an investment incentive,” Gale said. “Making a rate cut just is a nonstarter from an efficiency perspective, so making it an investment incentive instead would help some.”

READ MORE: 26 tips on expiring Tax Cuts and Jobs Act provisions to review before 2026

Regardless, the choice in this year’s presidential election between former President Donald Trump, a Republican who has indicated he would extend the 2017 tax bill he signed into law, and Vice President Kamala Harris — a Democrat who has called for continuing the provisions only for those with incomes below $400,000 — will exert more influence than any economist. Down-ballot races in Congress add another layer of uncertainty about the deduction.

“You notice, I asked them what they thought should be done,” the moderator, Wessel, said. “I didn’t ask them to predict what will happen, because if I wanted to predict what happened, I wouldn’t get five economists on a stage.”

The economists praised some aspects of the law, such as limits to the deduction for mortgage interest payments and a higher standard deduction that has led to less itemization across the board. In general, lawmakers ought to “forget 199A and all the bad stuff” so that they can “get all that revenue back” and “start doing the nice parts of the reform again,” Clausing said.

“I’m not sure we can afford the rate cuts, regardless of any silly pledge about $400K or not,” she said. “It’s not clear Americans will even notice their taxes going up. The vast majority of them — they didn’t notice when they went down.”

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SEC’s Semiannual Reporting Proposal Faces Investor Pushback: What CFOs Need to Know

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18 hours ago

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August 25, 2026

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U.S. Securities and Exchange Commission (SEC)

A proposal from the U.S. Securities and Exchange Commission to potentially shift some public companies away from quarterly financial reporting toward a semiannual model is drawing significant pushback from investors, even as it continues moving through the regulatory process. The debate has direct implications for corporate finance teams, auditors, and the broader transparency of U.S. capital markets.

What the SEC Proposed

According to a summary published by accounting advisory firm Cohen & Co., the SEC issued a proposed rule on May 19, 2026, aimed at simplifying financial reporting requirements for many U.S. public companies. The proposal would potentially reduce the frequency of certain mandatory disclosures from quarterly to semiannual, a structural change that has not been made to core U.S. reporting requirements in decades.

The proposal follows an extended debate within U.S. policy circles, with proponents arguing that reduced reporting frequency could lower compliance costs and free up management time for longer-term strategic planning rather than quarter-to-quarter results management.

Why Investors Are Pushing Back

Comment letters submitted in response to the proposal have been extensive, and according to Cohen & Co.’s review of the public record, investors “appear to be largely opposed” to the shift, viewing frequent interim reporting as a core benefit of U.S. capital markets relative to other jurisdictions.

Accounting and law firms have taken a more measured position, generally urging any changes to remain aligned with the Financial Accounting Standards Board (FASB), whose existing disclosure requirements and guidance are built around a quarterly reporting cadence. A shift to semiannual reporting without corresponding changes to FASB guidance could create friction between SEC filing requirements and GAAP-based disclosure expectations.

Lessons From the U.K. Experience

The debate is not without precedent. The United Kingdom moved away from mandatory quarterly reporting for listed companies in 2014, returning to a semiannual disclosure requirement. According to Cohen & Co.’s analysis, that experience offers a cautionary data point: there was no measurable increase in capital expenditure or R&D investment following the change, while analyst coverage of affected companies declined as reliable interim information became less available — a particular risk for smaller and newly public companies that rely on analyst coverage to maintain investor visibility.

Practical Implications for Finance Teams

Beyond the debate over disclosure philosophy, the proposal carries practical complications. Many companies have debt covenants and credit agreements structured around quarterly financial delivery; a shift to semiannual reporting could require renegotiating those terms. Reduced reporting frequency would also extend the “window of market silence” between disclosures, a factor that governance and investor-relations teams would need to manage carefully to avoid information asymmetry.

Separately, and unrelated to the reporting-frequency debate, the SEC and FASB have continued finalizing more routine updates this year. New Accounting Standards Updates are taking effect for December 31, 2026, fiscal year-ends covering income tax disclosures, credit loss measurement, induced debt conversions, and stock compensation, according to Eide Bailly’s review of 2026 ASU activity. Additional guidance on paid-in-kind dividends and environmental credits is also on the near-term horizon.

What to Watch Next

The semiannual reporting proposal remains in the comment and review phase, and no final rule has been adopted as of this writing. Finance leaders should monitor the SEC’s regulatory agenda for further movement, while treating the current quarterly reporting requirement as the operative standard until any final rule is issued and an effective date is set.

Given the extent of investor opposition documented in the comment file, a full shift to mandatory semiannual reporting appears more likely to result in either a scaled-back compromise or continued study rather than swift adoption — though the SEC’s ultimate direction remains uncertain.

 

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AI-Driven Automation and Continuous Accounting Frameworks

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2 weeks ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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