Business Tax Policy Barometer

Insights are shared into the business community’s perception on key tax policy issues.

In brief

• This barometer tracks views on issues such as the US economic outlook, global tax developments, sustainability and artificial intelligence.
• The issues of greatest concern were international tax, the expiring Tax Cuts and Jobs Act provisions and the possibility of a higher corporate tax rate.

When will the Federal Reserve lower rates?

A majority of respondents (52%) believe the Federal Reserve will begin to lower interest rates in the second quarter of 2024, while over a quarter (28%) believe the rate cuts will begin in the third quarter of 2024.

Likelihood of a federal government shutdown

The prospect of a federal government shutdown in 2024 looms. Respondents give the federal government a 47% likelihood of shutting down in 2024.

Global tax developments

Forty-seven percent of respondents have been very closely following both the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit sharing (BEPS) 2.0 Pillar One and Pillar Two over the past year. For those following only one of these initiatives, the main focus has been on Pillar Two (28%); with 1% focused on Pillar One.

Forty-four percent of respondents believe that a substantial majority of the Inclusive Framework countries will ratify Pillar Two of the OECD BEPS 2.0 model legislation by the end of 2025. Forty-eight percent believe a substantial majority will ratify after 2025, and 8% believe a substantial majority will never ratify.

Respondents are not optimistic that the US will enact legislation consistent with Pillar Two in 2024 or 2025. There is a 40% likelihood for enactment after 2025 and a 40% likelihood of no enactment.

Tax extenders

Two major revenue raising provisions included in the TCJA went into full effect at the beginning of 2022: 1) the EBIT-based interest expense limitation, which is based on earnings before interest, taxes and depreciation (EBIT); and 2) the amortization of certain R&E expenditures.

• Three-quarters (75%) of respondents expect relief to be enacted in 2024 from the provision requiring amortization of certain R&E expenditures.

• Respondents are slightly less optimistic for enactment of relief from the limitation on the EBIT-based interest expense – 68% expect enactment of relief in 2024.

A number of major provisions included in the TCJA are scheduled to expire starting at the end of 2025. Respondents think it is most likely that the lower individual tax rates (40%), expensing for equipment investment (37%), and the Section 199A deduction for qualified business income (34%), will be extended. Only 13% see higher exclusion rates for GILTI and FDII and 11% see the lower tax rates and credits for BEAT being extended.

Tax policy outlook

Greatest tax policy concern

The biggest tax policy concern for respondents is international tax (58%). This is followed by the TCJA provisions that expire at the end of 2025 (51%) and the potential for a higher corporate income tax rate (50%).

Likelihood of corporate rate increase

Aligning with concerns over a higher corporate income tax rate, respondents believe that an increase in the corporate rate tax is likely to be considered within the next several years (62% say moderately or extremely likely, 26% say somewhat likely, and 12% say not at all or slightly likely).

Sustainability and AI

About half of respondents (51%) think it is at least somewhat likely that the United States will enact a carbon pricing regime, such as a carbon tax, within the next decade. Fourteen percent of respondents place a zero likelihood for enactment and 34% say enactment is only slightly likely.

There is significant interest in the tax incentives included in the Inflation Reduction Act (IRA). Over one-third (34%) of respondents are extremely interested, while one-quarter (25%) are moderately interested and 22% are somewhat interested. Thirteen percent are not at all interested in the IRA tax incentives.

About half of respondents are either currently using AI (17%) or planning on using AI (32%). The other half are not currently using or planning to use AI (51%).