A new KPMG survey of 1,400 board and audit committee members, CFOs and tax directors found that nearly half do not expect a reform of corporate tax rates until 2013.
Fully 48 percent of survey respondents foresee no change to the current 35-percent corporate rate until after 2012. Twenty-nine percent predicted that the rate would only be reduced to between 32 and 34 percent, while 29 percent said the rate would drop to between 30 and 31 percent.
Furthermore, many respondents expect the reductions to be offset by trimming or removing three key corporate tax provisions. Thirty-four percent said they expect domestic manufacturing deduction, accelerated depreciation, and the use of foreign tax credits to be reduced or eliminated. Fifteen percent feel only the domestic manufacturing deduction and accelerated depreciation would provide the offset.
“As many of the survey respondents believe, it is our view that major tax reform will not happen quickly,” said Hank Gutman, KPMG tax principal and director of the Tax Governance Institute and former chief of staff of the U.S. Congressional Joint Committee on Taxation. “If rates are in fact lowered and preferences reduced or eliminated, we will see an outcome with winners and losers. This will occur because the use of preferences is not uniform across all businesses. Companies need to stay nimble and ensure they are in a position to respond to what develops.”
Gutman went on to say that the current issues are far more complex than those at the time of the Tax Reform Act of 1986. The current debate is fueled by four significant variables: the government’s fiscal state, the substantive reform proposals, the effects of those proposals on the economy, and the politics of enacting legislation. Any discussion is almost sure to be “a lively and complicated one,” he said.
Sixty-three percent of respondents said they do not plan to be actively involved in the corporate tax debate, while 19 percent anticipate being active in the process. Of that group, 11 percent said their involvement would be through a trade group, 10 percent would be involved individually, and 9 percent would be active through a combination of a legislative consultant, a trade association, and personal efforts.
“I think the vast majority of the respondents to that survey are correct and I doubt that we will see any action on corporate tax reform this year,” noted Jeanine Arnett, AFP’s Director of Government Relations & Public Policy. “While some policymakers, including those in leadership positions, have expressed a desire to address corporate tax reform, the specifics as to the exact methods on how to do that are largely unknown and there is little consensus at this point. The Obama Administration does not believe that corporate tax rates should be addressed outside of the context of reforming the entire tax code and that could prove to be extremely problematic. Tax reform is not an easy issue to work through and any sweeping changes to the code are sure to take several months, if not years, to adequately address legislatively.
“While AFP was hopeful that change would come sooner, the harsh reality is that 2012 is a much more reasonable timeframe at this point,” Arnett added. “While there is always a possibility of action at any time, coming to quick solutions, particularly in the area of taxes, is not the best course of action. AFP believes that corporate tax reform is vitally important to American businesses and we would like to see Congress take substantive action soon rather than continuing to place U.S. businesses at a disadvantage as the result of a deficient corporate tax code.”