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 assesses business tax professionals’ current views on the prospects for and key aspects of federal tax reform1. The barometer measures the expected likelihood of the different stages and key elements of federal tax reform.
This monthly survey tracks trends in the views of business tax professionals while tax reform is debated and developed in the US Congress. This is the fifth monthly barometer; this barometer tracks the views reported from 29 January through 7 February 2014.2
- Most business tax professionals expect tax reform will be a multi-year effort with significant debate and developments continuing in 2014, but very little chance of legislation being enacted this year. Slightly more than half of respondents assign a zero probability of tax reform being enacted in 2014. Those who think there is some possibility of enactment have a median expectation of only 5%.
- Business tax professionals were less optimistic in February about the prospects of federal tax reform than in December. With the announced early retirement of Senate Finance Committee Chairman Max Baucus (D-MT) and the lack of a major push for tax reform in the President’s State of the Union speech, the expectations of significant movement on tax reform in 2014 continue to decline.
- Looking to the House of Representatives, many respondents still expect (median 50%) House Ways and Means Committee Chairman Dave Camp (R-MI) to release a specific tax reform plan with rates, base broadeners and revenue estimates in 2014. The median expectation is that there is a one-in-four likelihood that the Ways and Means Committee will begin a tax reform markup in 2014. Fewer respondents believe the House Ways and Means Committee will approve tax reform legislation by the end of 2014 (median 10%), and an even smaller number think the House of Representatives will pass tax reform legislation this year (median 5%).
- As for the Senate, with a change in the Finance Committee chairmanship, most respondents had significantly lower expectations that the chairman would release a specific tax reform plan with rates, base broadeners and revenue estimates in 2014. The median expectation fell from 60% to 25% that a detailed tax reform plan would be released this year, even though Sen. Ron Wyden (D-OR), who was officially named chairman on 13 February, has previously released a tax reform proposal with legislative language and preliminary revenue estimates. Respondents believe it less likely that the Senate will engage in committee or full Senate action on tax reform in 2014 than the House.
- The median respondent thinks federal tax reform will most likely be enacted no sooner than 2017, in the first year of the next President’s term. Respondents give a 34% average likelihood that tax reform will occur in the next Congress (2015-16), a 39% likelihood tax reform will occur in the 114th Congress (2017-18), and a 23% likelihood that tax reform will not occur in the next five years.
- With tax reform moving out of the spotlight, business tax professionals are focusing more on whether Congress will act to reinstate a number of important tax provisions that expired at the end of 2013, including the research tax credit, the Subpart F active financing exceptions, the look-through rule for controlled foreign corporations (CFCs), bonus depreciation and 51 other provisions. Respondents give an average likelihood of 21% that the expired provisions will be extended in the first half of 2014, a 54% likelihood in the second half of 2014, a 16% likelihood in 2015 or later, and a 9% likelihood that these provisions won’t be extended.
- Outside of legislation to extend expired tax provisions, respondents have only a 10% median expectation that there will be tax legislation in 2014. The most frequently cited other potential tax legislation includes financing for the highway trust fund, revenue raisers to pay for tax or spending changes, legislation to encourage retirement savings and technical corrections.
The barometer is a monthly survey completed this month by approximately 90 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. The survey results are based on an online survey conducted by EY’s Quantitative Economics and Statistics practice.
Note: The TTC/EY Tax Reform Barometer defines tax reform as legislation that substantially broadens the tax base or changes the tax rate for either corporate or individual taxpayers.
Important milestones and elements of tax reform
There is a strong desire among policy-makers, the business community and the public for a tax system that is simpler, fairer and more conducive to economic growth. The chairmen of the House and Senate tax-writing committees originally set a goal of achieving tax reform by 2014.
They have held numerous hearings and have solicited extensive feedback on key elements of tax reform over the past several years. President Obama called for federal tax reform in his FY14 budget and described key elements in the administration’s Framework for Business Tax Reform, released in February 2012.
Questions remain, however, about whether tax reform can be achieved within the current political and legislative constraints, and if so, what form it will take. Key elements yet to be resolved include:
- Whether tax reform will be revenue-neutral, will lose or will raise revenue
- Whether reform will be comprehensive, affecting both individual and corporate income taxes, or limited to business taxes, the corporate income tax or the individual income tax
- What rates to set for corporate and individual income tax
Other tax policy issues
With less emphasis being placed on tax reform, business tax professionals are focusing more on whether Congress will act to reinstate a number of important tax provisions that expired at the end of 2013, including the research tax credit, exceptions under Subpart F for active financing income, look-through treatment of payments between related CFCs under the foreign personal holding company rules, 50% bonus depreciation and 51 other provisions.
Respondents give an average likelihood of 21% that the expired provisions will be extended in the first half of 2014; a 54% likelihood in the second half of 2014; a 16% likelihood in 2015 or later; and a 9% likelihood that they will not be extended.
Fifty-four percent of respondents think the major expired provisions will be extended for only one year (through 31 December 2014); 39% think they will be extended for two years through 31 December 2015; 1% think they will be extended for three years; and 6% think some will be converted from temporary to permanent tax provisions.
Respondents have only a 10% median expectation that there will be tax legislation in 2014 outside of a potential extension of expired provisions. The most frequently cited other potential tax legislation includes financing for the highway trust fund, revenue-raisers to pay for other tax or spending legislation, legislation to encourage retirement savings and technical corrections.
Two-thirds of respondents report that their company or organization is modeling the potential effects of federal tax reform on their organization’s federal tax liability. Roughly one-third are modeling the effects of tax reform on their industry and customers, while one-quarter are considering the effects of tax reform on the US economy and the macroeconomic effects on their organization.
It is likely that the prospects for federal tax reform and the expectations of leading US tax executives and practitioners will continue to change throughout 2014. The barometer will continue to 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. Stay tuned.
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 leading US tax executives and practitioners completed this month’s barometer. Results are based on an online survey conducted by EY’s Quantitative Economics and Statistics practice.