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 key aspects of federal tax reform. We also measure the expected likelihood of the different stages in federal tax reform. The results below are based on an online survey conducted by our Quantitative Economics and Statistics practice from 31 October to 12 November 2013.
- Tax reform progress: Tax reform is expected by most business tax professionals to be a multi-year effort with progress begun in 2013 and continuing in 2014.
- US House of Representatives: The Barometer has a median1 expectation of 50% that the House Ways and Means Committee will pass tax reform legislation by the end of calendar year 2014, and a 25% median expectation that the House of Representatives will pass tax reform legislation next year.
- US Senate: The Barometer has a median expectation of 25% that the Senate Finance Committee will pass tax reform legislation by the end of calendar year 2014, and a median expectation of 10% that the Senate will pass tax reform legislation next year.
- Federal tax reform: The expectation that federal tax reform will be enacted in 2014 fell from 20% in October to 15% in November. The numbers reflect fallout from the government shutdown in October and continuing debate and upcoming new deadlines on the FY14 budget and federal debt limit. Respondents indicate that federal tax reform is most likely in 2016.
- Progress for the remainder of 2013: Although time is running out for significant progress in calendar year 2013, the median expectation is 50% that the Chairman of the House Ways and Means Committee will release a tax reform plan and 30% for the Senate Finance Committee Chairman to release a tax reform plan. These expectations are down from 70% and 35% in the October Barometer.
- The question of revenue: 80 percent of respondents ranked the revenue-neutrality vs. revenue-raising issue as the biggest or second biggest hurdle to federal tax reform (up from 73% in October), followed by reluctance to reduce major individual tax expenditures (49%).
- Budget negotiations: Most of the respondents think it is unlikely that tax legislative instructions will be part of the House/Senate budget negotiations expected in mid-December. Sixty-one percent assign a probability of less than 20% that the budget negotiations will provide a roadmap for tax reform.
- End of year tax provisions: A majority of the respondents think the tax provisions expiring on December 31, 2013, will not be extended until the second half of 2014 (52%). Thirty-six percent expect the potential extension to occur in the first half of 2014. Nine percent of the respondents don’t think an extension will occur until 2015 or not at all.
- The BEPS project: Almost half of the respondents (46%) are paying close attention to the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) action plan, since it could have ramifications for both US and foreign countries’ tax policy changes. Three percent are paying close attention since the BEPS project could have foreign tax policy changes, while 38% are paying some attention to the BEPS project.
Note: 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.
Important milestones in tax reform
There is a strong desire among policymakers, the business community and the public for a tax system that is simpler, more conducive to economic growth, and fairer. The chairmen of the House and Senate tax-writing committees have expressed their goal of achieving tax reform by 2014 and have held numerous hearings and solicited feedback in a variety of ways on key elements of tax reform over the past several years.
President Obama has 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. Whether tax reform can work its way through the various steps of the legislative process, as well as what type of tax reform can be agreed to, however, are major questions facing the business community.
Key elements of tax reform include:
- Whether it will be revenue-neutral, lose or raise revenue
- Whether reform will be comprehensive, affecting both individual and corporate income taxes, or limited to business taxes, the corporate income tax or only the individual income tax
- Where the top individual and corporate income tax rates will be set
Other tax policy issues
Federal tax reform is not being debated in isolation. Continuing Congressional deliberations on the budget and the debt limit as well as the debate over global taxation at the Organization for Economic Cooperation and Development could impact the timing and design of federal tax reform.
Expiring tax provisions are also an important issue since tax reform will not occur in 2013.
The barometer is 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. 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 The median represents the expectation where half of the respondents expect this likelihood or higher likelihood, and half expect this likelihood or lower.