Accountants and lawyers team up to fight Trump tax provision

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US accountants and lawyers are mounting a furious lobbying effort on Capitol Hill to head off a tax rise targeted at professional services firms, which is buried in Donald Trump’s “big, beautiful bill”.

The giant tax and spending package lawmakers are negotiating would shut down a tactic firms used to cut partners’ federal income tax, if the pressure campaign on Republican leaders in the US Senate fails.

The American Bar Association this week wrote to senators calling the measure “fundamentally unfair” for singling out professional services firms, which include doctors, dentists and veterinarians as well as lawyers, accountants and consultants.

The American Institute of Certified Public Accountants called the measure “ugly” and has co-ordinated local accounting groups from across 53 states and US territories to write to senators demanding the measure be dropped.

At stake is a workaround US states introduced after the first Trump administration limited the ability of individuals to deduct state and local tax payments from their income before calculating their federal tax liability.

The so-called Salt cap was one of the more contentious measures in Trump’s 2017 Tax Cuts and Jobs Act, because it disadvantaged people in typically Democratic areas with high state income taxes and local property taxes. The legislation reduced to $10,000 the total state and local taxes that taxpayers could deduct from their returns.

It proved particularly uncomfortable for homeowners in well-off areas in states such as New York and California — as well as for highly paid lawyers and accountants, because the profits of partnerships are “passed through” to partners and taxed as individual income. This left them with significantly higher state income tax bills than employees of traditional companies.

The workaround, introduced in 36 states, allows state income taxes to be paid at the firm level, but House Republicans proposed barring its use by professional services firms.

The Salt deduction has again proved a flashpoint in negotiations over the One Big Beautiful Bill Act, which passed by the House of Representatives last month and must be aligned with a bill in the Senate to become law. The House version raises the Salt cap to $40,000 but contains other measures to limit the cost of the move, including barring the use of the workaround for partnerships classified as a “specified service trade or business”, a broad category covering accountants, lawyers, doctors and some other professional services firms.

Partnerships in other sectors could continue to use the workaround.

“It’s targeted and it’s ugly,” said Melanie Lauridsen, vice-president for tax policy and advocacy at the AICPA, which counts armies of tax accountants among its 400,000 members and first raised a public alarm about the measure last month.

“It’s complicated and it’s buried in there,” Lauridsen said. “We were aware of it first and faster.”

Top Senate Republicans have indicated they intend to scale back the Salt cap, which they say is regressive and costly. But negotiations are continuing with House members who are adamant that the cap should be raised.

According to a Tax Foundation analysis, eliminating the workaround for professional services businesses would raise $73bn over 10 years to partially offset the cost of raising the cap.

The move would be “fundamentally unfair and further widen the tax parity gap between professional service businesses and other pass-through businesses and corporations”, ABA president Bill Bay wrote in a letter to Senate leaders this week.

“The vast majority of law firms in America are small pass-through businesses, as more than 75 per cent of practising lawyers in our nation work as solo practitioners or in small law firms . . . These professional service businesses provide just as many benefits to the economy and society at large as other pass-throughs and corporations.”

Additional reporting by Lauren Fedor in Washington