Accounting

Economists call for trashing the QBI deduction

Published

2 years ago

October 3, 2024

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.”

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.

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.”

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.”

Accounting

Continuous Auditing Transforms Corporate ERPs

Published

5 days ago

July 21, 2026

Business Finance News

continuous auditing transforms corporate erps

As corporate accounting departments cross the threshold into late July 2026, the adoption of continuous, automated auditing systems has reached a definitive turning point. Driven by advances in artificial intelligence and deep integration with modern Enterprise Resource Planning (ERP) platforms, leading finance organizations are moving away from traditional, periodic post-hoc audits in favor of real-time, 100% transactional verification. This technological transition is redefining internal control environments, reducing compliance costs, and eliminating the structural delays inherent in legacy quarterly closing processes.

Unlike traditional auditing frameworks that rely on statistical sampling—a process that inevitably leaves operational blind spots—continuous auditing software monitors operational data feeds continuously. Every purchase order, electronic invoice, payroll disbursement, and cross-border wire transfer is automatically cross-referenced against established corporate governance parameters, regulatory tax schedules, and anti-fraud algorithms in real time. Anomalies or unauthorized ledger entries are flagged instantly, allowing internal audit teams to investigate and remediate compliance gaps immediately rather than months after the close of a financial period.

The implications for executive financial management are far-reaching. By embedding continuous verification directly into daily transaction workflows, chief financial officers gain uninterrupted visibility into the organization’s true financial standing. Real-time balance sheet auditing eliminates the severe operational bottlenecks associated with month-end and quarter-end financial reconciliations, freeing accounting professionals to focus on strategic financial modeling, tax planning, and capital allocation rather than manual data entry and spreadsheet consolidation.

However, implementing continuous auditing requires accounting leadership to invest heavily in data governance and technical upskilling. Internal audit teams must evolve from manual ledger reviewers into system architects capable of auditing complex algorithms and validating automated data pipelines. Accounting firms and corporate controllers that master continuous auditing will establish a resilient compliance framework capable of meeting stringent international regulatory standards with total transparency.

Accounting

U.S. Imposes New 50% Tariffs on Canadian Imports Under Rare Legal Provision

Published

6 days ago

July 20, 2026

Business Finance News

U.S. Imposes New 50% Tariffs on Canadian Imports Under Rare Legal Provision

WASHINGTON — In a major escalation of cross-border trade friction, U.S. President Donald Trump has signed executive orders imposing new 50% tariffs on a wide selection of Canadian exports, citing discriminatory practices by Ottawa targeting American auto, dairy, and beverage industries.

The new duties, announced Monday, will take effect in 30 days. They target a broad spectrum of consumer and industrial goods—ranging from wine, liquor, and milk products to commercial cement, furniture, clothing, and hockey equipment.

Untested Legal Mechanism

To enact the sweeping measures, the administration invoked Section 338 of the Tariff Act of 1930—a rarely used legal provision allowing the executive branch to levy additional tariffs of up to 50% on foreign nations deemed to discriminate against U.S. commerce.

White House officials noted that Section 338 addresses trade discrimination rather than national security or economic emergencies. The move comes months after prior global emergency tariffs faced legal challenges in domestic courts, signaling Washington’s pivot toward alternate statutory authorities to maintain import duties.

Senior administration officials briefed reporters that the measure directly responds to Canadian provincial bans on U.S. alcohol, restrictions on American vehicle exports, and import quota disparities affecting U.S. dairy and cheese producers relative to third-party trading partners.

“While the administration continues to secure reciprocal trade agreements globally, Canada retaliated against efforts to protect domestic industry,” U.S. Trade Representative Jamieson Greer stated.

USMCA Impact and Carve-Outs

Significantly, the newly ordered 50% duties will apply to designated items even if they otherwise comply with the United States-Mexico-Canada Agreement (USMCA).

However, the administration confirmed key targeted exemptions:

Energy products (including oil and natural gas)
Potash and critical minerals
Fish and seafood
Goods already governed by sector-specific duties (such as existing steel and aluminum tariffs)

Administration representatives emphasized that the tariffs do not stem from recent disputes concerning drifting Canadian wildfire smoke, noting that policy options regarding environmental spillover remain under separate review.

Canadian Response and Market Reaction

Following the White House announcement, the Canadian dollar experienced a sharp decline against the U.S. dollar, falling approximately 0.4% during evening trading.

Canadian Prime Minister Mark Carney issued a statement emphasizing that Canada’s earlier counter-duties had merely matched previous U.S. trade actions. “Canada stands ready to engage intensively to address outstanding issues with the U.S. to the mutual benefit of our citizens,” Carney stated, pointing to detailed proposals Ottawa submitted to modernize the USMCA framework.

Ontario Premier Doug Ford took a firmer stance, urging a “dollar-for-dollar” reciprocal response if the measures go into effect on August 19.

With a 30-day implementation window before the duties officially lock in, industry associations and trade groups on both sides of the border are calling for urgent bilateral negotiations to avert further supply chain disruption across North America.

Accounting

Automated Continuous Auditing: Transforming Compliance and Real-Time Financial Oversight

Published

6 days ago

July 20, 2026

Business Finance News

Transforming Compliance and Real-Time Financial Oversight

The traditional accounting paradigm—defined by periodic monthly closures and post-hoc annual audits—is rapidly giving way to continuous, automated financial oversight. As of July 2026, forward-thinking accounting practices and multinational corporate finance departments are leveraging continuous auditing systems powered by advanced machine learning models. These systems monitor operational transactions in real time, shifting audit methodologies from sample-based post-analysis to absolute, 100% transaction-level verification.

The operational advantages of continuous auditing are transformative. Standard auditing procedures historically relied on statistical sampling, which, despite rigorous methodology, inherently left gaps where anomalies or fraudulent transactions could go undetected for months. Modern continuous auditing platforms integrate directly with enterprise resource planning (ERP) databases, instantly cross-referencing purchase orders, invoices, bank feeds, and tax records. Any deviation from established control parameters or unusual transaction behavior triggers immediate flags for internal audit teams, dramatically reducing detection lag from quarters to seconds.

Beyond fraud prevention, continuous auditing fundamentally alters internal reporting and decision-making. Executive leadership no longer has to wait weeks after the close of a quarter to evaluate precise financial standing; real-time verified ledger data provides an uninterrupted view of operating margins, tax liabilities, and cash flow dynamics. This real-time visibility enables corporate controllers to adjust capital allocation strategies dynamically, mitigating liquidity constraints and capitalizing on emerging commercial opportunities far more efficiently than competitors bound to legacy reporting cycles.

However, implementing continuous auditing requires accounting professionals to acquire new analytical capabilities. The role of the auditor is evolving from manual data reconciliation toward system validation, algorithmic model governance, and strategic risk interpretation. Accounting firms and corporate finance departments must invest in continuous technical education, ensuring that audit staff possess the data engineering skills necessary to design, maintain, and evaluate complex automated compliance systems.