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 assess 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 and tracks trends in the views of business tax professionals as the US Congress debates and develops tax reform.
This past month’s Barometer includes questions addressing the Administration’s upcoming budget release, the Organization for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) project and expiring business tax provisions. This is the eighth Barometer; it tracks the views reported between 14 and 20 January 2015.2
- Respondents continue to believe that tax reform will occur within the next several years (73% likelihood that tax reform will happen in 2018 or earlier). Respondents gave a 52% likelihood that tax reform will happen in 2017 or earlier, and they gave a 33% likelihood that 2017 will be the most likely year for tax reform to occur.
- Business tax professionals increasingly view business or corporate-only tax reform as more likely than a comprehensive reform affecting both individual and corporate taxation. Fifty-nine percent of respondents think tax reform will affect only businesses or only corporations, while 41% think reform will be comprehensive. In most prior Barometers, between 50% and 70% of respondents thought tax reform would likely be comprehensive.
- Most respondents (61%) expect tax reform will be revenue-neutral (rather than raise revenue), 35% believe it will raise revenue, and less than 5% think it will reduce revenue. While this finding is consistent with the October 2014 Barometer, 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 50% that the House Ways and Means Committee chairman will release a specific tax reform plan by the end of 2015. Tax professionals provided medians of 30% and 20% that the Ways and Means Committee will mark up tax reform legislation and that the Ways and Means Committee will pass this legislation, respectively. Respondents gave a 10% median likelihood that the House will pass tax reform legislation.
- Respondents thought it equally likely (50% median likelihood) that the Senate Finance Committee chairman will release a specific tax reform plan by the end of 2015. They also have a lower expectation (10% median likelihood) that the full Senate will pass tax reform legislation by the end of 2015.
- Barometer participants generally thought (43%) that a tax reform plan put forward by the Obama Administration would be a positive step in moving the tax reform process forward.
- Respondents think the OECD BEPS project will result in the most significant change in global income taxation in the year 2017 (30% median response) as compared to 2015 (10% median expectation), 2016 (25% median expectation), 2018 (25% median expectation) or not at all (15% median expectation).
- Fifty-nine 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 an increase in gas tax.
- Barometer participants gave a 65% average likelihood that Congress will explicitly incorporate revenue from the macroeconomic impact of tax reform in its official scorekeeping.
The Barometer is a monthly survey of 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. The survey results are based on an online survey conducted by our Quantitative Economics and Statistics practice.
Prospects and timing of federal tax reform
This Barometer also assesses business tax professionals’ views on congressional actions through calendar year 2015. The median response was a 50% likelihood that the incoming Ways and Means Committee chair will release a specific tax reform plan before the end of next year.
Business tax professionals’ median expectations for tax reform action by the end of 2015
Tax professionals’ views on the BEPS project and expiring tax provisions
The January Barometer included questions on the OECD BEPS project and expiring business tax provisions. Respondents were asked about the likelihood that the OECD BEPS project will result in significant change in the taxation of global income of multinational corporations in the US and/or abroad in the next several years.
Respondents gave an average likelihood of 39% that significant change will occur in 2017. Although most respondents interpreted this question as which year was most likely to see significant change, it is also possible respondents interpreted the question as whether the BEPS project would lead to significant change in each of the years indicated.
The professionals were then asked if the OECD BEPS recommendations at the end of 2015 will influence US tax policy through a commitment on the part of the US to adopt new rules in certain areas.
Respondents were generally undecided on their views, although 57% think the US will adopt new rules in transfer pricing, and 44% think Subpart F will be influenced.
Respondents expecting the BEPS project to influence the US to adopt new rules in certain areas
Other tax policy issues
Business tax professionals were also asked if Congress will raise tax revenues to provide additional funding for the Highway Trust Fund and related infrastructure spending. Fifty-nine percent believe Congress will raise tax revenues, and 41% believe tax revenues will not be increased.
Those who answered that they expected a raise were asked a follow-up question regarding funding means; 57% think an increase in gas tax would be the most likely way to provide funding, 9% believe funding will come from repatriation holiday, and 14% agree that an increase in deficit would provide funding. Twenty percent suggested other sources, such as customs fees.
The prospects for federal tax reform and the expectations of leading US tax executives and practitioners will probably continue to change throughout 2015. The Barometer will continue to gauge changes in the expectations for tax reform.
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 One hundred thirteen leading US tax executives and practitioners completed this month’s Barometer. Results are based on an online survey conducted by Ernst & Young’s Quantitative Economics and Statistics (QUEST) practice.