“Temporary” Tax Provisions and Uncertainty: Evidence from a Survey of Professional Tax Preparers

Abstract

INTRODUCTION Toward the end of 2012, the popular press was awash with reports about the ‘‘fiscal cliff’’ and the efforts to avert it. A major aspect of this ‘‘cliff’’ was the expiration of many temporary tax provisions. Most of these tax laws had—temporarily?—reduced taxes for individuals and businesses. Thus, some politicians, lobbyists, and tax experts believed that they were contributing to the growing national deficit. However, for most of the expiring provisions, this was hardly the first time they faced expiration. Some have been extended so many times that taxpayers could be excused for believing they were permanent aspects of the tax code. During November of 2012, we conducted a comprehensive survey that asked Certified Public Accountants (‘‘CPAs’’) and other tax professionals to describe their opinions about the continuance of ‘‘temporary’’ provisions in the tax code. Our objective was to see if the multiple extensions of many of these temporary provisions have led CPAs (and their clients) to conclude that these provisions are to be treated as if permanent. Further, we wanted to know if the tax professionals’ opinion on these tax laws affects the advice they give to their clients. We find that in November of 2012, professionals, on average, believed that many provisions would be temporarily extended, but only few made permanent. This finding is not substantially different for responses received before versus after the 2012 elections (November 6, 2012). Since its last major overhaul in 1986, the Internal Revenue Code (‘‘IRC,’’ ‘‘tax code,’’ or ‘‘Code’’) has increasingly taken on a vast array of temporary provisions. Congress passed some of these provisions as temporary because they filled a need that was seen as temporary (such as an economic stimulus during an economic downturn). Other tax laws are, or were, temporary because there was no bipartisan support for a more permanent tax code change (such as the Bush era tax rate changes and the elimination of the estate tax for the year 2010 with a ‘‘sunset’’ provision). Regardless of the reason why these provisions were adopted into the Code ‘‘temporarily,’’ lawmakers have extended many of them multiple times. Furthermore, the Code includes various sections that tax professionals and politicians generally acknowledge as being outdated (such as the alternative minimum tax, ‘‘AMT’’) or in need of inflation adjustment, but without bipartisan