Tax legislation, audit oversight, and other AICPA advocacy focus areas

No matter who’s in charge, regulation, legislation, and education remain front and center when it comes to advocacy efforts in Washington, according to Mark Peterson, AICPA & CIMA executive vice president–Advocacy. Also important is understanding how to navigate a new administration’s priorities.

In this episode of the Journal of Accountancy podcast, Peterson details some of the focus areas of the White House and Congress – tax legislation, an emphasis on government efficiency, and a change in regulatory approach.

What you’ll learn from this episode:

• Peterson’s overview of AICPA advocacy in Washington.
• Why “navigate” is an important word for Peterson.
• What has been normal and not normal in the change of presidential administrations.
• Peterson’s assessment of the potential path for tax legislation.
• The “very different environment” related to regulation of public companies.
• Advice for members in dealing with D.C. uncertainty.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Welcome to the Journal of Accountancy podcast. This is Neil Amato, a news editor with the JofA. Today’s episode has a focus on advocacy in Washington, and here to talk more about that topic is someone who understands it well. He is Mark Peterson, AICPA & CIMA’s executive vice president–Advocacy. Mark, thank you for being on the JofA podcast.

Mark Peterson: Absolutely, Neil, great to be here. Great to be chatting with you today.

Amato: Thanks. To kick us off, for people who might hear the word “advocacy” and may not understand what that entails and what exactly you do, could you give us the elevator speech version of that?

Peterson: Yes. Advocacy is a very broad word, and to be honest, for the Association, almost everything we do has an element of advocacy in it, trying to advance the interests of our membership. I really focus on what I like to call retail advocacy. That’s focused on an outcome. We’re very focused on an outcome on the regulatory side related to compliance. You can think of tax and audit, on the management accounting side because regardless of where you sit in management accounting, you have to deal with some level of government governance or regulation.

Within that, again, sometimes there’s a little mystery because we deal with politics, but we really boil it down to educating. We educate policymakers and members of Congress, and we try and bring our expertise and our know-how and where we sit in the capital markets and on Main Street to the policy issues that they want to advance. We try and translate extremely complicated issues – tax is a great example, but audit is also – to policymakers who aren’t deep in these issues. Then we navigate. All of this is around a political foundation that’s ever shifting, and we try and navigate that to make sure we have good outcomes – good outcomes now and into the future. That’s not always easy, but we have a good track record and history of not only getting things done but maintaining credibility through shifting political winds, Neil.

Amato: That’s great. Thank you. I saw you speak at the Future of Finance Summit in San Diego. It was in the second week of December and about five weeks after the presidential election. The title of that session was State of the Union: Post-Election Implications for Finance Teams. First, I will ask, what are some of the post-election implications for our CPA membership?

Peterson: Neil, that was prior to swearing-in and Congress getting set up and rolling and the administration getting rolling. I’m taking this in chunks. In the U.S., anyway, the legislative process has really slowed down. What we’re seeing in this administration, which is different than the first administration for [President Donald] Trump is a real leverage of executive powers.

I will say these executive actions, these executive orders you’ve seen, there is an element of that that’s normal. Each administration undoes the last administration’s executive orders and then implements their own. That part’s not unusual. What you can do with executive orders, you can shape your government. You can set up agencies like the Department of Government Efficiency that we’ve seen. We’re all familiar with the ability to call out the National Guard, or protect the borders, or make national security decisions. What you’re not supposed to be able to do is to overturn the Constitution, impede the Supreme Court, or impact the legislative process or a legislative outcome. Now, those two have been tested, definitely. We’re seeing a lot of that in the courts. The boundaries have been pushed related to executive powers.

I think relevant for us is there has been a ton of them, a historic number in a short period of time, some of them impacting us from everything from pulling out of the Paris Accord and how that impacts sustainability issues, all the way to a hiring freeze for the administration and then a regulatory freeze. Both of those are normal for a certain period of time. But it’s gone from a freeze to really a focus on right-sizing the federal government. I think that the conversation around government efficiency has been around forever. That is not a new conversation. It’s not a partisan one. Both sides have tried to have that discussion.

I think the aggressive nature that the Trump administration has going at it is new. There’s perspectives. Within our membership, there’s two perspectives. One is, is this a competent way to go about it? The other is, you know, ends justify the means. If disruption is what it takes to actually get the government right, let’s do it. We’re in the middle of that, and we’re trying to figure it out, and it has an impact on Department of Treasury, on the IRS, on Department of Labor, how they move forward. Again, I’ll go back to my word “navigate.” We’re navigating through all that in order to get an outcome.

Amato: In your time in Washington, have you ever had a situation like this in terms of getting to know an administration a second time? Because obviously, if I’m right, I think with just one exception in U.S. history before now, all other presidents who have served multiple terms have done so consecutively.

Peterson: Obviously, this is interesting, if you think about it, because we’re going to have two one-termers in a row. We had Trump served one term, then we had Biden one term, and now we’re going into another single term. Administrations behave differently, even if they have two terms. In the second term basically, they go into lame-duck mode. That’s not how this administration is behaving. They’ve come out very aggressively. I think this goes back again to and it’s not a partisan issue, but the nature of the congressional elections, the fact that we’ve had very narrow majorities, the fact that issues have become extremely partisan. So, over the last 12 years and we’re in a two-year election cycle within that it’s been really hard to get anything done on Capitol Hill.

The must-pass things happen, Department of Defense, the government funding, which also turns into some drama because they’ll take that right up to the last minute. Raising the debt ceiling are examples. But outside of that, the normal process of committees meeting and putting together products, passing the House, passing the Senate, conference committing those things and going to the president’s desk, it’s become rare. I think that has put a lot of pressure on this executive function concept. And I will say to you, Neil, I think we’re seeing, to some extent, an unprecedented leveraging of that. But once those traffic cones get widened, they will be utilized by the next administration regardless of which party.

This is something where we’re going to have to get used to a certain level of uncertainty because at least with a congressional process, it takes time. You can absorb the discussions that are going on. You can have input. Through executive functions basically, they can make the call and they can push it out through the administration.

Amato: There’s definitely a lot happening in Washington. Just this morning as of our recording, March 28, we published a story about the SEC saying they’re going to stop defending its climate rule. It’s just one example of many of a flurry of activities. In these, I guess, first two months of the administration, what have you learned about the goings-on in Washington that are most affecting our CPA membership?

Peterson: Well, I think there’s a couple of things. We’ve discussed the executive orders, which everybody’s trying to figure out, and there is no – this kind of comes across as being a little disconcerting – but there is nobody who knows. It isn’t, as if you had access to the members of the House and Senate leadership, that they know exactly how this is going to play out. It’s being tested, so you have that.

Then you have the fact that we do have expiring tax provisions that are going to push a tax bill through a reconciliation process. That’s something we’re watching. We just went through a government funding package on March 14 that basically made it through the House and the Senate within hours of the government shutting down. That would have been in the middle of tax season, which would have been quite a challenge [with an] already stressed-out IRS. We’re going to go from that to a debt ceiling vote this summer. At some point, we’re going to be dealing again with those tax provisions that are expiring in a reconciliation package, and reconciliation is really all about the fact that it only requires, and this is through parliamentary procedure, it only requires a simple majority in the Senate.

It’s really just about a vehicle to pass things with a simple majority, because without that, you have to have a 60-vote majority in the Senate, and we haven’t seen that forever. It’s utilized [by] both parties over the years, significant tax packages, [Affordable Care Act], Obamacare went through the reconciliation process. What we’re observing is, in some ways, we’ve seen, again, that process unfold we’ve seen in the past. How Congress deals with it, with these razor-thin Republican majorities – yet to be determined.

Amato: You mentioned tax legislation briefly in that. What is the status of tax legislation, and what are the steps such legislation still needs to go through to become law?

Peterson: We still think that it’s going to happen. We think the interest in the expiring provisions being addressed is enough that will make it happen, but it’s actually disagreement between Republicans in the House and Republicans in the Senate about that process. Again, reconciliation, think of it as a process, and it starts with a budget.

House and Senate have two different visions of that budget. The House’s vision is one significant package that would include addressing the expiring provisions from [the Tax Cuts and Jobs Act], dealing with the border, dealing with defense and energy. The Senate’s version of that is to deal with the nontax issues at the border, defense, and energy, and then do a second package that would be the tax package. President Trump has weighed in, saying he prefers the single package. However, he’ll take what he can get.

The House views it as they’ve got such a thin majority that they’re only going to probably be able to get one thing done, and so that’s why they’re focusing on one package. The Senate basically believes that they’ve got to get some of those nontax imperatives done. They’re right now trying to come to terms with that. That’s the discussion that’s going on. Once they figure that out, that will have to pass. That gives the framework for what you can put in it. That will determine the size of the tax package. Then the tax writers will go to town, and they’ll pull in the elements of addressing the expiring provisions, and then some of the campaign promises of things like tax on tips, tax on car loans, Social Security.

Then that all gets put through this complicated process, which I’m not going to take you through, where the parliamentary rules on whether it meets what’s called the Byrd Rule related to being able to utilize the reconciliation process. In the end, we’re still betting they figure out a way to get something done.

Amato: Clearly, we’ve touched on a lot of topics, but what else is out there, the legislative areas of focus that you are following?

Peterson: Tax is a big one. Obviously, we’re focused on that, and we discussed it. Reconciliation also can be utilized for other issues that are nontax. They just have to have a budget implication. Example of that would have been how they pushed healthcare policy through that. Can’t be strictly policy. There has to be some hook.

There are other issues that we’re watching in terms of that. There has been some public discussion related to changing the structure around the PCAOB and audit oversight. We do not have a position on that. We do not. We will work with the regulator that we’re given. We focus on audit quality and making sure that investors are protected, but that is a discussion that’s going on that will play out in some way.

I think even without that, you could already see and you could hear it, [March 27] during the confirmation hearing for the incoming SEC chair, a very different environment around the regulation of public company auditing and public companies. It’s just going to be a different perspective of rationalizing regulation and a different focus on enforcement. You can hear that through this confirmation process. I think that’s going to be true in other areas where we have a lot of government engagement.

Department of Labor would be another example. That is more in practice. You get a new administration, and the relationship is different with the profession. That’ll be the way it is for four years, then we’ll see what the next four years is like.

Amato: Clearly, you’re quite engaged about all of this. What do you like about doing it, about representing the AICPA & CIMA?

Peterson: I’ll tell you what, we have CPAs or CGMAs in the U.S. in every congressional district. We have insight in every element of the capital markets from the large firm on down. We are the small business adviser on every Main Street. We walk into an office or we have a discussion with policymakers, and they start nodding because of their relationship with the CPA. They may think tax, but we definitely have a lot of credibility. We have huge standing, whether it be, again, at the largest companies in public company auditing or on Main Street with the things that we do, and we have a phenomenal reputation.

I always tell the story about I’d hate to be the lobbyist representing the airlines, because whoever you’re talking to just got off a really bad flight. That’s not the way it works for us. That doesn’t mean, Neil, that we don’t have to make an argument. That means that we don’t have to have a public-interest argument. It means that we have immediate standing to have those discussions, and that’s incredibly valuable.

Amato: I think that’s well said. To close out this conversation, what message would you like to leave for our members?

Peterson: Well, I’ll tell you what, there are uncertain times right now, and I think that it’s accelerated a little bit with what we’re observing. What we’re advising folks is to just not follow the headlines. We’re seeing tariffs are an example or even some of these federal cuts where you see massive numbers being reported that is not factual, and then it reconciles itself.

There’s definitely going to be a focus on things like tariffs. There’s definitely going to be a view of making government smaller and more efficient, but we’re trying not to react to the headlines because the headlines have been, to be honest, misleading and incorrect in many ways, and we’re really trying to focus on what are the practical implications for the profession in everyday practice, and that’s where we’re focused.

It does take a little patience to let it play out, and so that would be my advice. And then, stay at it. It’s interesting, with all of these discussions, the reports we’re getting back on tax season are that the service is about the same as it was last filing season. Now, when we get into the summer and if structural changes are made and downsizing occurs, what’s yet to come, who knows? But, we’re for modernization, we’re for technology. But the policymakers will figure out, what should that cost, and then they’ve got to figure out how they meet those levels of service that we need.

Amato: Mark Peterson, appreciate your insights on all of these topics. Thanks again for being on the podcast.

Peterson: Wonderful to be here. Thanks, Neil.