David Kautter, Assistant Secretary of the US Treasury for Tax Policy and former inaugural leader of the Kogod Tax Policy Center, is a problem-solver. He's passionate about helping troubleshoot and resolve challenges - especially when it comes to tax.
"If you do it right, you'll spend your whole life helping people," Kautter said. "You solve problems clients never imagined could be resolved…and often undercover ones they didn't know they had."
This environment of discovery is also a passion for Kautter. He loves that taxation pushes him to constantly dig deeper into issues and find new solutions. "Tax is wonderful because you're always learning," Kautter said. "It's like being engaged in an archeological dig. You keep going down levels until you discover what's buried there."
On May 24, 2018, Kautter discussed his passion for taxation-as well as his work, and take on the new tax reform bill-in American University's entrepreneurship incubator. Caroline Bruckner, current director of the Kogod Tax Policy Center, hosted the live interview, asking a mix of questions that drew on his knowledge and experience.
In case you missed the event, we've put together an overview of Kautter and Bruckner's discussion, posted below. A word of caution: the following summary is not verbatim (some questions have been omitted, and a couple from the audience have also been integrated); rather, this is intended as an overview of the conversation's key points.
We hope this offers insight into Kautter's expertise and professional life-a path that's as impactful as it is intriguing.
Kogod School of Business: Why did you pursue a JD versus a master's of accounting? Would you make the same choices today?
David Kautter: As an undergraduate, I wanted to major in accounting, because that's the language of business. If you understand accounting, you understand what's going on in any business.
I graduated with bachelor of science in accounting and went to law school-my passion since I was a kid. What I learned in law school was that I was more interested in the business side of things, rather than the legal side. It felt more natural to me.
There weren't many master of science in taxation programs at that time. Today, I would have seriously considered a master's in taxation as an alternative to the JD.
KSB: So, you love tax?
DK: Tax is wonderful because you're always learning. It's like being engaged in an archeological dig. You keep going down these levels until you discover what's buried there. It's very intellectually stimulating. Once you get involved in the IRS you figure out in a hurry there's no way you'll know everything.
KSB: Can you talk about your experience in public policy?
DK: After I graduated from law school, I worked for an accounting firm, then transitioned to working for a US Senator who was a member of the Senate Finance Committee. Public service was completely different than private practice. In public service, the issue isn't what is the law-it's the law should be.
The way most of us earn our living in the tax world is figuring out what the law is and applying to facts. Once you get into the public policy world, that doesn't matter so much. It provides the basis of your thought process, but you're really trying to decide what the rules should be.
If you ever have the opportunity to work in public service, take advantage of it. It's a way to give back. But it's also a way to try and influence events for the better. You're constantly talking to folks about what the rules should be. And you quickly learn that every issue has at least two good sides-sometimes a lot more. I think that expands your mind and the way you evaluate issues.
I think it also helps going back into private practice. It teaches you to be creative and thoughtful and not rule things out. And it also teaches you to be positive. The more creative you can be, the better the clients are served. It's something you spend a whole lifetime doing so.
KSB: Then you transitioned back into the private sector working for EY. What prompted you to do so?
DK: One of the challenges of working on Capitol Hill is that you see the same thing over and over: people asking for something. In that sense, it's repetitious, and after a while you get skeptical. Before people even walk through the door you think you know what's going to happen.
So, I went back into private practice and started off as a generalist. I think that's the best way to go, because then you have a broad base of knowledge in whatever you do. And then you can really specialize in one or two subject areas.
At EY, I ended up spending a lot of time in the compensation and benefits area - retirement planning, fringe benefits, stock options, and executive compensation. But I never lost that passion for public service-and curiosity with the IRS.
KSB: And after that, you transitioned to academia…why? And what role do you see the Kogod Tax Policy Center having in public policy discourse?
DK: With respect to coming to American University, while I was in one of the major accounting firms, I spent a lot of time teaching. I really had a passion for it. It's not that different from being a good tax practitioner. You're trying to impart knowledge to the clients or the students. You're trying to help people solve problems.
Helping establish the Kogod Tax Policy Center was also a unique opportunity. Having worked in the Washington area my whole career, I found that there is really a need for objective, analytical advice as part of the legislative process. Organizations like the Kogod Tax Policy Center are able to bring a non-partisan, objective, thoughtful approach to the legislative process.
That's how you get the best public result. You get more balanced results when you get more of this discussion and dialogue.
KSB: How easy is it to transition between the public and private sector?
DK: People are constantly moving in and out of the IRS, as well as Capitol Hill. My advice is it's easier to start off in private practice and go to public service, rather than the other way around. Because in the public sector, there's an element that's not always present that's there in the private sector: the deadline. Things can get stretched out and it's not as finite.
I know a lot of successful employees that started in the public sector and then made the private sector transition, but they struggled a lot with it. It's a different mindset that you have to account for every minute of each day at work. If you don't start off that way, it's a little bit harder.
KSB: Do you have any advice for students?
DK: Build as many options into your knowledge and career as you can. Having a degree in accounting helped me deal with the finance world, and the law degree allowed me to understand the law. And made me a much better writer and analytical thinker. That provided options along the way so that when I thought I wanted to focus on something other than law, I could move to the business side. The more diversity you build into your experiences, the more rewarding your career will be. And the more fun you'll have!
KSB: Let's talk about tax reform.
DK: Absolutely. So, the tax reform bill has 119 provisions in it. As a result, the IRS figures we will have to amend about 450 tax forms, instructions and publications. All the forms are drafted, and now we're working on the 1040, maybe making some changes. The instructions are also almost finished. Our plan is to release them over the summer, with the opportunity for public comment. That leaves guidance. There are two forms of guidance in broad terms: sub-regulatory and regulatory. And there's some major guidance provisions in this reform bill. The single most controversial-outside of the state and local tax deduction-is Section 199A, the 20% deduction for pass through entities.
KSB: What is the most challenging part about implementing these new provisions?
DK: Technology. We run 140 integrated tax systems to process returns, and have asked for $397 million to implement tax reform. 4% for the forms; 4% for guidance; 19% for outreach and education. And 73% for technology.
This is my favorite statistic: there are 2 ½ million cyberattacks to the IRS website daily-a million of which are sophisticated. They are efforts to not just to acquire tax payer data, but also to interrupt the processes of the US government. As we alter the software and the processing system, we have to make sure it's secure as possible from a cyber perspective.
Fifty-nine percent of IRS hardware is obsolete, and 32% is two or more updates behind. What the IRS has done, though, is pretty astute. They've taken the technology dollars over the years and have invested it in tax return processing software. So, the software is fairly current, it's just the main frame computers that need updating.
KSB: What's the most important policy prescription that wasn't included in the tax reform bill?
DK: I'm a big fan of getting rid of as much complexity as we can. We did some simplifying on the individual side, and the miscellaneous side of itemized deductions are gone. At this point we estimate that only 10-12% of taxpayers are itemized. It used to be 35%, so that's some simplification. But I'd love to see even more happen.
KSB: Has the IRS been talking about how they can provide some relief in the first year of this huge transition?
DK: Yes, we're anticipating a final decision about what we're going to do. We thought about changing the W4. It may not be blank. Just for certain situations, both on a business side and on an individual side.
We also started a campaign called the paycheck check-up, where you can use the IRS's withholding calculator online and, if necessary, complete a new W-4 form. We've had some success of getting people to visit the website, but not as much as we'd like to. I think some people may still be surprised with their refunds, which is unfortunate. We've got so many taxpayers who rely on over-withholding as a forced form of savings. We just want people to have the right answer.