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Trump’s tax cuts may fail to drive much economic boost

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President-elect Donald Trump says renewing tax cuts would turbo-charge investment and boost U.S. economic growth — a pledge that helped propel him to election victory in November.

But new analysis from the Committee for a Responsible Federal Budget, a nonpartisan fiscal watchdog group, warns that extending tax cuts set to expire next year could do almost nothing to grow the economy. That’s a jarring data point for Republicans framing the case to renew the costly legislation as a way to boost an economy that many voters say isn’t serving them.

Most of the measures up for renewal largely benefit individuals and households, including lower income tax rates and an expanded child tax credit. While those are an easy sell to voters, economists caution on the scale of economic dividend they generate. The bigger spur for investment, they say, would be cuts for corporations.

The business tax breaks in the 2017 law Trump signed in his first term aren’t up for renewal. While he vowed to donors and business leaders gathered at the New York Stock Exchange on Thursday that he’d lower the corporate rate to 15%, that pledge is seen as a potentially perilous move with both voters and some Republicans disdainful of more aid for big business.

The CRFB based its findings on an assessment from the Congressional Budget Office, which had earlier looked at the outcome of not extending the tax cuts. That nonpartisan arm of the legislature had found that letting the reductions expire would generate a major boost to public finances, reducing the cumulative fiscal deficit by $3.7 trillion over a decade.

Those bigger revenues would mean less public borrowing, in turn offering a spur to private investment. In the CBO’s analysis, that would help make up for a modest reduction in the labor force from the expiration of the tax cuts. “On net, those two effects largely offset each other, resulting in very small changes to gross domestic product,” the CBO said.

That CBO analysis implies that renewing the tax cuts would also have a similar, modest net effect on growth, in the CRFB’s thinking.

Spending restraint?

Some other models, including those from the Tax Foundation and the Penn-Wharton Budget Model, have shown small amounts of positive economic feedback from renewing the tax cuts — but nowhere near enough to cover the cost of extending the tax cuts, which the CBO projects would amount to $4.6 trillion over a decade.

Still, the outlook from both the CRFB and CBO adds to doubts about the ultimate economic gains, and underscores the pressure lawmakers will be under to find savings to fund the tax cuts. 

Trump has touted swingeing spending cuts, through a proposed Department of Government Efficiency — a nonprofit group to be run by billionaire Elon Musk and entrepreneur Vivek Ramaswamy looking to come up with ideas for deep savings in public outlays. In addition, the president-elect has talked of imposing a tariff of 10% to 20% on all imported goods plus 60% on Chinese products, and promoted that as an offset for tax cuts.

That comes as the fiscal backdrop continues to deteriorate.

The U.S. budget deficit hit its highest since the COVID pandemic years in 2024, propelled by increased debt interest costs and higher Social Security and defense spending. The shortfall for the fiscal year that ended Sept. 30 came to $1.83 trillion, up from $1.7 trillion the previous year, making it the largest on record aside from the 2020 and 2021 fiscal years.

Since then, new figures show the U.S. ran a $624 billion deficit in the first two months of the current fiscal year, equating to borrowing of $10 billion per day — or $2.1 trillion on a rolling basis over the past 12 months, according to the CRFB.

“That’s an astonishing sum especially when considering the huge challenges ahead,” according to Maya MacGuineas, president of the CRFB. “If we intend to get serious about fiscal responsibility, we might as well start now.” 

GOP priorities

Extending the tax cuts are only one part of Trump’s fiscal platform, which includes plans to slash other taxes across the board — such as those on tips and overtime pay, along with the corporate-rate reduction.

Investors are watching closely for any signs of emerging fiscal stress. While Wall Street economists say extending the tax cuts would be positive for growth, they caution there are other dynamics at play too.

“It would be crucial for Trump 2.0 and Congress to complement the tax cuts with spending cuts,” said Stephen Jen, chief executive of Eurizon SLJ Capital. “It’s not just about tax cuts, it should be about a small government, which means lower spending.”

That means there’s less room for broader tax easing given the worsening fiscal outlook, according to David Seif, chief economist for developed markets at Nomura.

“If I’m wrong and there are further tax cuts, I doubt that there will truly be many pay-fors. I would instead expect reconciliation instructions to allow for a larger deficit,” he said, referring to the budget reconciliation process that Republicans are planning to use to pass the tax legislation, which will allow them to bypass the need for any Democratic support.

However the debate plays out, the underlying economic landscape of lingering inflation, a surging deficit and potential for slower economic growth all stack up to a very different starting point to the last time major tax cuts were debated. Martha Gimbel, executive director of The Budget Lab at Yale and a former White House economist under President Joe Biden, said that makes for an uncertain outcome.

“Policymakers need to remember that 2024 is not 2017,” she said. “Similar actions could see very different results.”

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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