Key insights from the Business Tax Policy Barometer for May 2025

The Tax Council and EY release their Tax Policy Barometer for 2025

• The Tax Policy Barometer tracks the views reported from April 21, 2025, through May 7, 2025.
• Respondents are optimistic about the economy for the next 12 months.
• 75% of them are concerned about tariffs.

Introduction

The Tax Council (TTC) and Ernst & Young LLP (EY) produce the Business Tax Policy Barometer, providing insights on the business community’s perceptions on a variety of business tax and other key policy issues. This 24th Barometer tracks the views reported from April 21, 2025, through May 7, 2025 and assesses perceptions on issues such as the US economic outlook, tariffs, the Tax Cuts and Jobs Act (TCJA) cliff and President Trump’s tax provisions.

Outlook on business environment over next 12 months

The Barometer suggests the outlook for the business environment has changed as policy uncertainty and tariffs weigh heavily. Roughly a quarter of respondents are optimistic about the business environment in the United States over the next 12 months, down from nearly three-quarters in the November 2024 Barometer.

Multiple key provisions of the TCJA expire in 2026 and 2027. While the timing of extensions is uncertain, most respondents believe extensions will include business provisions such as expensing for equipment investment and the Section 199A deduction for qualified pass-through business income.

As the Trump Administration implements its trade/tariff policy and debate on the reconciliation bill takes shape, business and tax executives need to stay informed of the key policy issues that could impact their operations.

Respondents believe that extension/enactment of TCJA cliff/President Trump's tax provisions will include

Policy outlook and concerns

• Respondents have a pessimistic outlook on the business environment over the next 12 months:
  • A majority (60%) of respondents are pessimistic compared to only 24% who are optimistic.
• Respondents believe that a US recession is more likely than not – the average likelihood is 54% within the next 12 months.
• While a possible US recession is one top concern for respondents, policy uncertainty and tariffs are, by far, the biggest areas of concern for respondents:
  • Nearly three-quarters of respondents rank policy uncertainty (73%) and tariffs (71%) in their top three concerns, followed by recession risk (58%).

Outlook on business environment over next 12 months

Top concerns

• While three-quarters of respondents are at least somewhat prepared for tariffs, only one-quarter have been moderately or extremely impacted by them.
  • Only 16% do not expect significant impacts.
• Respondents expect tariffs to have the biggest impact due to their supply chains in China (66%) and Canada (63%), followed by Mexico (55%) and the European Union (48%).

Countries where tariffs expected to have biggest impact

Level of preparation for tariffs

How significantly will tariffs impact your business

Tariffs with biggest impact

• Respondents are more pessimistic than optimistic that the Trump Administration will successfully be able to negotiate trade deals with other nations.
  • 45% are pessimistic while 28% are optimistic. 27% are neutral.
• Nearly three-quarters of respondents expect tariffs to increase reshoring only slightly, if at all.
  • Roughly a quarter expect no increase in reshoring.
  • Half of respondents chose “slightly”.

Level of optimism for trade deal negotiations

Expectations for reshoring from tariffs

TCJA cliff/President Trump’s tax provisions enactment/extension

• A majority of respondents (55%) think that paying for a TCJA extension/President Trump’s tax provisions is moderately or extremely important.
• Respondents give an average likelihood of 69% for the extension/enactment of the TCJA cliff/President Trump’s tax provisions on or before September 2025:
  • The average likelihood that an extension occurs after September 2025 is 26%, and 6% responded not at all.

Importance of paying for TCJA cliff/Trump tax provisions

Likely timing of extension/enactment of TCJA cliff/Trump tax provisions

TCJA cliff and President Trump’s tax provisions

• Most respondents (73%) believe it is very or extremely likely expensing for equipment investment will be extended, and 17% believe the provision will be extended permanently.
• A majority (54%) also believe the Section 199A deduction for qualified pass-through business income will be extended.

Extension/enactment of tax provisions

• A majority of respondents (56%) believe an extension of expensing for equipment investment is very or extremely likely to increase business investment.
• Over a third say the same regarding a 15% effective tax rate on US manufacturing and production activity.

Likelihood to increase business investment