Business tax reform and trends: survey views
Views on the prospects for federal tax reform
In the Tax Council - EY Tax Reform Business Barometer1, we provide a current assessment of business tax professionals’ views on the expected likelihood of the different stages and key elements of federal tax reform.
In addition, the January 2016 Barometer also included questions on a possible international-only tax reform; integration of the individual and corporate income taxes; the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting (OECD BEPS) project; and the impact of the recently enacted Protecting Americans from Tax Hikes (PATH) Act — the extenders legislation — on tax reform. This Barometer tracked the views reported from 13 through 20 January 2016.2
Prospects for federal tax reform
- Respondents continue to believe that tax reform will occur within the next several years (61% likelihood that tax reform will happen in 2018 or earlier). Consistent with the September 2015 Barometer results, respondents still believe 2017 is the most likely year for tax reform (31%).
- Approximately 45% of respondents think reform will be comprehensive; 23% think it will include all businesses, including both C corporations and pass-through businesses; 17% think it will affect only C corporations; and 13% think it will be international only.3 These results are very similar to those reported in the September 2015 Barometer.
- Respondents were asked about their expectations regarding the likelihood of the House of Representatives taking specific actions toward tax reform. Half of respondents believe there is at least a 50% probability that the House Ways and Means Committee Chairman will release a specific tax reform plan by the end of 2016. Additionally, half of the business tax professionals surveyed think the House Ways and Means Committee is at most 20% likely to mark up the tax reform legislation this year and 10% likely to pass it out to the full House. Half of respondents think it is at most 5% likely that the House will pass tax reform legislation this year.
- Respondents generally thought it less likely that the Senate Finance Committee chairman would release a specific tax reform plan by the end of 2016. Half of respondents thought the probability was less than 25%, and half didn’t believe there was any chance the Senate would pass tax reform legislation by the end of 2016.
International-only tax reform, integration of the individual and corporate income taxes, the OECD BEPS project and the impact of the PATH Act on tax reform
- International-only reform: with regard to interest in an international-only reform, 21% think its enactment will increase the likelihood of enactment of a more comprehensive tax reform at a later date, while 51% believe it will hinder comprehensive reform and 27% expect it to have no effect.
Integration: half of respondents think there is at most a 10% probability that the Senate Finance Committee chairman will release a discussion draft or proposal to integrate the individual and corporate income taxes to address the double tax on corporate earnings within the first quarter of 2016. Half of those surveyed thought the probability of release in the second quarter of 2016 was at most 20%.
Comparatively, half of respondents believe release in the third and fourth quarter of 2016 is at most 10% and 5% likely, respectively. Fifty percent of the respondents think the probability of the release of a proposal in a later year is over 25%. Moreover, 74% of respondents think it is very or somewhat likely that the integration discussion draft or proposal will change the tax treatment of interest, while 26% think it is somewhat or very unlikely.
- OECD BEPS project: forty-three percent of respondents think that the OECD BEPS project will result in greater similarity in the way countries tax the income of global companies while 28% think harmonization will decrease, and 29% think it will be unchanged.
- PATH Act and tax reform: fifty-six percent of business tax professionals believe enactment of the PATH Act makes US tax reform more likely while 12% indicated it makes tax reform less likely, and 32% think it has no impact.
In the January 2016 Barometer and every Barometer since February 2014, respondents have consistently viewed 2017, the first year of the next President’s term, as the most likely year for federal tax reform. In the January 2016 Barometer, respondents gave tax reform in 2017 a 31% likelihood. They gave a 26% likelihood for reform in 2018, a 15% likelihood in 2019 and a 5% likelihood in 20 20.
Furthermore, Forty-three percent of respondents expect that the OECD BEPS project will result in greater similarity or harmonization for how countries tax the income of global companies, while 28% think the project will result in less harmonization and 29% think there would be no change.
The barometer, a monthly survey completed by approximately 100 leading US tax executives and practitioners that tracks trends in the views of business tax professionals while tax reform is debated and developed in the US Congress, will gauge changes in the expectations for tax reform, including each of the milestones in the legislative process and the key elements of federal tax reform over the remainder of the 113th Congress.
1 The TTC/EY Tax Reform Business Barometer defines tax reform as legislation that substantially broadens the tax base or changes the tax rate for either corporate or individual taxpayers.
2 Ninety seven leading US tax executives and practitioners completed this month’s Barometer. Results are based on an online survey conducted by Ernst & Young LLP’s Quantitative Economics and Statistics (QUEST) practice.
Note that certain percentages presented in the Barometer may not total 100 due to rounding.