Business tax reform and trends: survey views
Views on the prospects for federal tax reform
In the Tax Council - EY Tax Reform Business Barometer, 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. The Barometer tracks trends in the views of business tax professionals as the US Congress debates and develops tax reform.
Additionally, the June 2015 Barometer included questions addressing the Trade Promotion Authority (TPA) trade agreements, the OECD BEPS project, and expiring business tax provisions. This is the ninth Barometer; it tracks the views reported between 16 June and 25 2015.1
- Respondents continue to believe that tax reform will occur within the next several years (67% likelihood that tax reform will happen in 2018 or earlier). Respondents gave a 41% likelihood that tax reform will happen in 2017 or earlier, and they believe 2017 is the most likely year for tax reform with a 31% likelihood. In the January 2015 Barometer, respondents gave a 52% likelihood that tax reform would happen in 2017 or earlier.
- Business tax professionals view businesses-only or international-only tax reform as more likely than a comprehensive reform affecting both individual and corporate taxation. Sixteen percent of respondents think tax reform will affect only corporations, all businesses including pass-throughs (22%), or international (22%), while 40% think reform will be comprehensive. In the January 2015 Barometer, which did not include the option for an international only reform, 12% and 47% of respondents thought tax reform would affect only corporations or all businesses including pass-throughs, respectively, while 40% thought reform would be comprehensive.
- Most respondents (61%) expect tax reform will be revenue-neutral, rather than raise revenue. Thirty percent believe it will raise revenue, and 9% think it will reduce revenue. While this finding is consistent with the January 2015 and October 2014 Barometers, it represents a significant shift from most prior Barometers whereby 50% to 60% of respondents generally thought tax reform would raise revenue.
- Respondents gave a median expectation of 25% that the House Ways and Means Committee chairman will release a specific tax reform plan by the end of 2015, down from a 50% median likelihood in the January 2015 Barometer. Tax professionals provided medians of 10% and 1% that the Ways and Means Committee will mark-up tax reform legislation and that Ways and Means Committee will pass this legislation, respectively. Respondents gave a 0% median likelihood that the House will pass tax reform legislation.
- Respondents thought it almost equally likely (20% median likelihood) that the Senate Finance Committee chairman will release a specific tax reform plan by the end of 2015. They also have an equal expectation (0% median likelihood) that the full Senate will pass tax reform legislation by the end of 2015.
- Barometer participants generally thought (80%) that the passage of Trade Promotion Authority (TPA) by Congress would not make tax reform more likely. Respondents gave a 72% likelihood that the Trans-Pacific Partnership (TPP) trade agreement will happen in 2017 or earlier, and they believe 2015 and 2016 are the most likely years for the TPP to be enacted with a 28% likelihood. Respondents thought it less likely (60% likelihood) that the Transatlantic Trade and Investment Partnership (TTIP) will be enacted in 2017 or earlier, with most respondents believing 2017 to be the most likely year with a 24% likelihood.
- Respondents think the OECD Base Erosion and Profit Shifting (BEPS) project will result in the most significant change in global income taxation in the year 2017 (35% median response) as compared to 2015 (5% median expectation), 2016 (20% median expectation), 2018 (25% median expectation), or not at all (25% median expectation).
- Fifty-four percent of business professionals believe that tax revenues will be raised for the Highway Trust Fund and related infrastructure spending. Respondents indicated that funding is most likely thought to be provided by miscellaneous measures (50%) or an increase in gas tax (20%).
- At the end of last year, Congress enacted a one-year extension of the expiring business tax provisions through the end of 2014. Respondents were asked the likelihood that the major expiring tax provisions will be extended again. Respondents found it more likely (69% average response) that the tax provisions will be extended in the second half of 2015 than in the first half of 2015 (9% average response). Others anticipate extensions occurring in 2016 or later, or not at all (average responses of 19% and 4%, respectively).
The trends here suggest that federal tax reform is not generally expected prior to 2017, the first year of the next president’s term. Respondents gave a 6% likelihood that tax reform will happen in 2016, a 31% likelihood 2017, a 26% likelihood in 2018, and a 13% likelihood in 2019. The respondents have decreased their expectation of no federal tax reform in the foreseeable future from 26% from the Barometer in October 2014 to 20% in the June 2015 Barometer.
The June Barometer included questions on the OECD BEPS project and expiring business tax provisions. Respondents were asked about the likelihood that the OECD Base Erosion and Profit Shifting (BEPS) project will result in significant change in the taxation of global income of multinational corporations in the U.S. and/or abroad in the next several years. Respondents gave an average likelihood of 38% that significant change will occur in 2017.
About the Barometer
The Barometer, a monthly survey completed by approximately 100 leading US tax executives and practitioners, tracks trends in the views of business tax professionals while tax reform is debated and developed in the US Congress. It 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 Eighty four 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.