TTC/EY Tax Reform Business Barometer

Transcription

1 TTC/EY Tax Reform Business Barometer Views on the prospects for, and key aspects of, federal tax reform September

2 The Tax Council (TTC)/Ernst & Young LLP (EY) Tax Reform Business Barometer (Barometer) assesses business tax professionals views on the outlook for, and key aspects of, federal tax reform. 1 The Barometer tracks the views of business tax professionals as the US Congress debates and considers reform of the US tax system. In addition to questions on tax reform, the September Barometer also included specific questions on the possibility of a unified Republican tax reform plan, bipartisan tax reform and a possible Democratic tax reform plan. This 15th Barometer tracked the views reported from August 30 through September 8,. 2 Key results Prospects for federal tax reform A majority of those surveyed (62%) believe that tax reform is most likely to be enacted in or On average, respondents believe that there is a 24% likelihood that tax reform will be enacted in and a 38% likelihood that tax reform will be enacted in These views are similar to those of the May Barometer respondents who, on average, believed that there was a 26% and 36% chance of enactment in and 2018, respectively. Half of respondents gave passage of tax reform legislation at least a 40% chance in the House and at least a 20% chance in the Senate. Approximately 83% of respondents believe that tax reform will be comprehensive, a somewhat greater percentage than the 73% of respondents from the uary Barometer. 3 Most respondents believe that tax reform, if enacted, will reduce revenue (75%) or be revenue neutral (24%). Very few respondents (2%) believe that a tax reform bill, if enacted, would raise revenue. Thirty percent of respondents believe that tax reform will be enacted on a bipartisan basis, with both Democratic and Republican support. Prospects for tax reform from Republicans A large share (79%) of respondents expect Republicans to release a tax plan that reflects a unified tax reform approach by House and Senate Republicans and the Trump Administration. Of respondents who think Republicans will release a unified tax reform plan, 91% expect the plan to be released before the end of, with 59% believing that the plan will be released in September or October and 33% believing that the plan will be released between November and December. The remainder of respondents (9%) believe that the plan will be released in the first half of Seventy-six percent of respondents who believe Republicans will release a unified tax reform plan expect a top statutory corporate income tax rate between 20% and 24%. Respondents indicated that a minimum tax on foreign-source income and a limitation on the home mortgage interest deduction are the provisions most likely to be included in a unified Republican tax reform plan: 100% and 91%, respectively, of respondents believe these provisions will be included. Prospects for tax reform from Democrats Seventeen Percent of respondents believe that Democrats will release a tax reform plan. 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 and two leading US tax executives and practitioners completed the September Barometer. Results are based on an online survey conducted by EY s Quantitative Economics and Statistics (QUEST) practice. 3 Note that certain percentages presented in the Barometer may not total 100% due to rounding. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 1

3 Prospects for federal tax reform The September Barometer included the standard set of questions on the expectations for federal tax reform included in prior Barometers. Expectations for year of enactment In every Barometer since February 2014, respondents have consistently viewed, the first year of a new Administration s term, as the most likely year for enactment of federal tax reform. In the September Barometer, this view remained, although respondents were not quite as optimistic as in the uary Barometer. Respondents think that there is a 62% likelihood for enactment in either or 2018, lower than the 83% likelihood in either year reported in the uary Barometer but very close to the 63% likelihood reported in May. Respondents gave an 11% likelihood for enactment in 2019, a 4% likelihood for 2020 and a 5% likelihood for Respondents gave an 18% likelihood of there being no reform at all from to Business tax professionals average expectations for year of tax reform enactment Expected year of tax reform Date of Barometer No reform in 5 years September NA NA NA 24% 38% 11% 4% 5% 18% May NA NA NA 26% 36% 14% 4% 5% 16% uary NA NA NA 48% 35% 7% 2% 2% 6% uary 2016 NA NA 4% 31% 26% 15% 6% NA 18% September 2015 NA 3% 6% 28% 26% 16% NA NA 21% June 2015 NA 4% 6% 31% 26% 13% NA NA 20% uary 2015 NA 9% 10% 33% 21% 9% NA NA 17% October % 14% 14% 27% 19% NA NA NA 26% March % 17% 14% 28% 16% NA NA NA 24% February % 18% 15% 24% 15% NA NA NA 23% December % 24% 15% 21% 11% NA NA NA 20% November % 23% 13% 18% 11% NA NA NA 15% Note: Percentages may not sum to 100 due to rounding. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 2

4 Expectations for action in the House and Senate The uary Barometer reflected a significant increase in expectations for the release of tax reform plans by the respective committee chairman and passage by both the House and Senate. While the latest Barometer suggests respondents have tempered their expectations for passage of tax reform somewhat since uary, they are still positive compared to previous years. Action in the House Half of respondents to the September Barometer think that there is at least a 75% likelihood that the House Ways and Means Committee chairman will release a specific tax reform plan before the end of compared with 95% of respondents in the uary barometer. Half of respondents think that the probability that the Ways and Means Committee will begin marking up tax reform legislation is at least 65%, which has held steady since the May Barometer but is down from 90% in the uary Barometer. Half of respondents think that there is at least a 50% probability the committee will report out a tax reform plan and at least a 40% likelihood that the House of Representatives will pass a plan during. Action in the Senate While respondents think that a tax reform plan is more likely to advance in the House than in the Senate, half of all September Barometer respondents still believe that there is at least a 50% chance that the Senate Finance Committee chairman will release a specific tax reform plan before the end of. Expectations for Senate passage of a tax reform plan have decreased during the past several months, with half of respondents giving a 20% likelihood for passage in September compared with half of respondents giving a 50% likelihood for passage in uary. Respondents are significantly more optimistic about the prospects for congressional action now than they were in uary 2016, as shown in the table below, which also includes the results from the uary 2016 and May Barometers. Business tax professionals median expectations for tax reform action by the end of the year House Senate Date of Barometer Aug May 2016 Aug May 2016 Tax-writing committee chairman releases tax reform plan 75% 80% 50% 50% 50% 25% Tax-writing committee begins markup of tax reform legislation 65% 70% 20% 35% 45% 10% Tax-writing committee approves tax reform legislation 50% 58% 10% 30% 30% 5% Chamber passes tax reform legislation 40% 50% 5% 20% 23% 0% Expectations for the comprehensiveness of tax reform The September Barometer again asked whether tax reform would be comprehensive or more targeted (e.g., international, corporate, business only). The results reflect a continued shift toward a belief that tax reform will be comprehensive, with 83% of respondents indicating that they believe reform will be comprehensive. Only 45% of respondents believed that tax reform would be comprehensive in the uary 2016 Barometer, as shown in the table below. In September, only 6% of respondents expected business-only reform (i.e., C corporations and pass-through businesses), and only 5% expected corporate-only reform. Only 3% expected international-only tax reform, and 3% indicated that they expected individual-only reform. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 3

5 Trend of expectations for comprehensiveness of tax reform Date of Barometer Aug May 2016 Both corporate (domestic and international) and individual 83% 75% 73% 45% Corporate (domestic and international) only 5% 10% 9% 17% Business (both corporate and pass-through income) only 6% 12% 17% 23% International only 3% 2% 1% 13% Individual only 3% 1% 0% 1% The views of tax professionals also continue to shift on how reform will be financed, and now three-quarters of respondents expect the bill to reduce revenue (i.e., be deficit financed). Only 2% think that tax reform will raise revenue, and 24% think that reform will be revenue neutral. As shown in the chart below, there was a gradual shift in views between September 2013 and uary 2016, with a more significant shift during the past year. Trend of business tax professionals beliefs on tax reform features, September 2013 to September 80% 70% Reduce revenue 75% 60% 50% 40% 30% 20% Revenue neutral 24% 10% 0% Sep 2013 Oct 2013 Nov 2013 Dec 2013 Feb 2014 Mar 2014 Oct Jun 2015 Sep May Raise revenue 2% Aug Expectations for bipartisan tax reform When asked about whether tax reform would be enacted with both Democratic and Republican support, 30% of respondents indicated that they believe that tax reform will be enacted on a bipartisan basis. Republican tax reform: a unified approach Since uary, the Barometers have asked a series of questions related to the House Republican Blueprint for Tax Reform. In July, the Big Six, a group comprised of House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch, and Ways and Means Committee Chairman Kevin Brady, released a statement on the future of tax reform signaling a move away from the House Republican Blueprint. The September Barometer includes questions on the likelihood of a Republican unified tax reform plan, expectations for timing of such a plan s release, the expected top corporate income tax rate and the provisions expected to be included in such a plan. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 4

6 Expectations for a unified Republican tax reform plan 79% of respondents believe that Republicans will release a tax reform plan that reflects a unified approach among House, Senate and Trump Administration Republicans. Expectations for timing of a unified Republican tax reform plan Respondents who believed that Republicans will release a unified tax reform plan were also asked their thoughts on the timing of a plan s release. Of those, most respondents (59%) believed that a unified plan would be released in September or October. Many respondents (33%) expected that a unified plan would be released later, in November or December. Only 9% of respondents believed that a unified plan would be released in the first half of No respondents believed that a unified plan would be released in the second half of 2018 or later. Expectations for the timing of a Republican tax reform plan 59% 33% 9% 0% 0% Sept Oct Nov Dec First half of 2018 Second half of 2018 In 2019 or later Respondents expect the top statutory US corporate income tax rate to be between 15% and 30% Of the 79% of respondents who believe that Republicans will release a tax plan reflecting a unified approach for tax reform, a large share (76%) expect the top statutory corporate income tax rate to be at least 20% but no more than 25%. This aligns with the 20% top corporate tax rate House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady proposed in the House Republican Blueprint. Former Chairman [Dave?] Camp proposed a top corporate income tax rate of 25%, to be phased in over 10 years, in his 2014 plan. Respondents also believe that a higher rate is possible: 18% believe that the top corporate income tax rate will be at least 25% but no more than 30%. A smaller share (6%) believe that the rate will be between 15% and 20%. During the campaign and in the Guideline for Tax Reform that the Trump Administration released in April, President Trump proposed a 15% top corporate income tax rate. Respondents views on content of Republican tax reform plan The September Barometer also included questions on what other provisions respondents expect to see in a unified Republican tax reform plan. Only respondents who believe that Republicans will release a unified tax reform plan were asked which provisions they thought would be included. Respondents were then asked whether they thought the provisions would be included as permanent or on a temporary basis. One hundred percent of respondents who believe that Republicans will release a unified tax reform plan believe that the plan will include a minimum tax applied to certain foreign-source income. Respondents are split on whether this provision will be permanent or temporary, with 56% believing that the provision, if enacted, would be on a permanent basis. A substantial share (91%) of respondents also believe that a unified Republican plan will cap or otherwise limit the deduction for home mortgage interest. Of these respondents, 86% believe that a limit on the home mortgage interest deduction would be permanent. Expectations for top statutory US corporate income tax rate Below 15% 15% 19% 20% 24% 25% 29% 30% 32% 33% or higher 0% 0% 0% 6% 18% 76% Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 5

7 Respondents believe that partial amortization of advertising expenses is likely to be included in a Republican plan, with 78% of respondents expecting to see such a provision included. Of those respondents, 81% are also optimistic such a provision will be enacted on a permanent basis. Seventy-five percent of respondents believe that a plan would include a Rothification provision. Under this provision, contributions to individual retirement accounts (IRAs) and/or 401(k) plans would be taxed up front but not when taken out (i.e., deductible or frontloaded savings vehicles would be converted to Roth-type or back-loaded savings vehicles). Eighty-four percent of respondents believe that such a provision would be enacted on a permanent basis. Many respondents (70%) believe that a unified Republican tax reform plan will include 50% bonus depreciation. Respondents are split as to whether 50% bonus depreciation would be enacted on a permanent or temporary basis. More than half of respondents (68%) expect a unified Republican plan to include provisions that seek to integrate the individual and corporate income taxes. Eighty-nine percent of those who expect the plan to include such provisions also expect the provisions to be enacted on a permanent basis. Sixty-five percent of respondents believe that a unified Republican tax reform plan will include some other provision to provide for acceleration of capital cost recovery deductions. Only 38% believe that other accelerated cost recovery measures will be enacted on a permanent basis. Expectations for provisions to be included in a unified Republican tax reform plan Minimum tax on foreign-source income 100% Limit home mortgage interest deduction 91% Partial amortization of advertising expenses Rothification 50% bonus depreciation Other accelerated cost recovery 78% 75% 70% 65% Repeal/limit state & local taxes deduction Immediate expensing Interest expense limitation 37% 35% 34% Other provisions 77% Thirty-seven percent of respondents believe that a unified Republican tax reform plan will include repeal or limitation of the state and local taxes deduction. In general, most respondents (71%) believe that this provision, if enacted, would be permanent. Only 35% of respondents believe that a uniform Republican tax reform plan will include immediate expensing of investment (in equipment, structures and inventories), even though this was a key component of the Republican House Blueprint. Of those respondents, 41% believe that immediate expensing would be enacted on a permanent basis. Respondents expect a limitation on interest expense to be the least likely provision included in a unified Republican tax reform plan, with only 34% believing that it will be included. If a general or across-the-board limitation on the deductibility of interest expenses is included, 85% of respondents believe that it would be enacted on a permanent basis. Finally, 77% of respondents believe that some other provisions would be included in a unified tax reform plan released by Republicans. Among the provisions cited were the following: a move to a territorial corporate tax system, repeal of like-kind exchange, a proposal for pass-through business income, credits for lower-wage earners, long-term accounting tax changes and middle-class tax cuts. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 6

8 Expectations for enactment of provisions on a permanent or temporary basis in a unified Republican tax reform plan Integration of indv. & corporate income taxes 89% 11% Limit home mortgage interest deduction 86% 14% Interest expense limitation 85% 15% Rothification 84% 16% Partial amortization of advertising expenses 81% 19% Repeal/limit state & local taxes deduction 71% 29% Minimum tax on foreign-source income 56% 44% 50% bonus depreciation 50% 50% Immediate expensing 41% 59% Other accelerated cost recovery 38% 62% Permanent Temporary Expectations for Democratic tax reform The September Barometer also asked respondents about the possibility of Democrats releasing a tax reform plan. Some 17% of respondents believe that Democrats will release a tax reform plan. Expectations for timing of tax reform proposal by Democrats As shown in the chart below, of the respondents who believe that Democrats will release a tax reform plan, most (65%) believe that it will be released in November or December. The rest of the responses were divided evenly 18% believe that Democrats will release a plan in September or October, and 18% believe that it will happen in the first half of No respondents believe that Democrats will release a plan in the second half of 2018 or later. Expectations for the timing of a Democratic tax reform plan 65% 18% 18% 0% 0% Sept Oct Nov Dec First half of 2018 Second half of 2018 In 2019 or later About The Tax Council and Ernst & Young LLP The Tax Council is a Washington, DC-based non-profit, membership organization promoting sound tax and fiscal policies since Its membership comprises (but is not limited to) Fortune 500 companies, leading accounting and law firms, and major trade associations. The global Ernst & Young Global Limited organization, of which Ernst & Young LLP is a member, is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Confidential All Rights Reserved TTC/EY Tax Reform Business Barometer 7

9 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Ernst & Young LLP. All Rights Reserved US SCORE no ED None ey.com