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Chances of Tax Reform in 2016? Talk is Cheap

Apr 19th 2016
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Expect a lot of talk about tax reform this year, but not much action, according to a new survey by Miller & Chevalier Chartered, a Washington, DC-based law firm with a global presence, and the National Foreign Trade Council (NFTC), a broad-based association of American companies.

Their 2016 Tax Policy Forecast Survey encompasses the perspectives of 120 corporate tax leaders for the upcoming year. Although the presidential and congressional elections will likely generate substantive discussions about comprehensive tax reform, most executives don’t anticipate any drastic changes this year.

“Respondents continue to be uncertain about when comprehensive tax reform will be enacted, or whether it will even happen at all,” Marc Gerson, vice chairman of the Miller & Chevalier Tax Department and a former majority tax counsel to the House Ways and Means Committee, said in a written statement. “That said, with the presidential and congressional campaigns in full swing, we are seeing a more active dialogue on tax policy than in prior election years. Most essential to our respondents is that policymakers address issues facing businesses, including the United States’ high statutory tax rate and the need to level the global playing field through international tax reform.”

The conventional wisdom among survey respondents is that Republican presidential candidates will engage in more favorable tax policy conversations than Democratic presidential candidates. Similarly, the vast majority of business tax executives say there’s a greater chance of tax reform if the GOP grabs control of both the House and the Senate over the next two years.

Changes in congressional leadership are also perceived as positives for changes in tax policy. Almost 40 percent of respondents identified Rep. Paul Ryan’s ascent to speaker of the House as the most influential factor affecting tax policy in 2016.

Some of the other highlights of the survey are:

  • Despite a livelier conversation about tax reform, not one survey respondent believes tax reform will happen in 2016. The vast majority of respondents (82 percent) believe there will be no tax legislation at all this year.
  • Respondents name the enactment of revenue-raising provisions without offsetting tax rate reductions (30 percent) and the high statutory tax rate in the United States (22 percent) as their top two business tax concerns in 2016.
  • Business tax executives remain concerned that corporate rates won’t be sufficiently reduced. If tax reform eventually occurs, they expect the top statutory corporate rate to be either 25 percent or 28 percent, which still would leave the United States at a competitive disadvantage in the global marketplace.
  • More than three-quarters of respondents (78 percent) believe Sen. Bernie Sanders would have the least favorable tax policy for business income, followed by Hillary Clinton. Yet, more than half of respondents (51 percent) name Clinton as the most likely winner of the 2016 presidential election.
  • Tax executives believe Congress will again extend several temporary tax provisions that were not made permanent by the Protecting Americans from Tax Hikes (PATH) Act of 2015. But most respondents (55 percent) believe Congress will act only when those provisions are set to expire or have already done so. This could result in another round of retroactive extensions.

“While there’s hope that changes in presidential and congressional leadership will have a positive impact on tax reform, respondents are still unsure whether such reform will actually happen,” said Catherine Schultz, vice president for tax policy at the NFTC. “This uncertainty stems from three factors – divided government, lack of agreement on desired revenue impact, and lack of administration support – which respondents believe are the greatest impediments to comprehensive tax reform.”

Related article:

How Your Clients Can Benefit From the PATH Act

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