President-elect Donald Trump made clear during his campaign that tax reform was high on his list. So far, there’s little to indicate that position has changed.
KPMG appears to believe that, too, and issued a report – in question-and-answer format – that explains what could happen.
It’s vital to remember that House Republicans have their own tax reform plan in mind, and it doesn’t necessarily agree with Trump’s, although there are similarities.
KPMG offers the following factors that could work for and against tax reform:
Working for Tax Reform
- Increased urgency for it.
- US corporate tax rate is the highest in the Organization for Economic Cooperation and Development (OECD).
- GOP control of the House, Senate, and White House.
- Mandatory repatriation of foreign earnings to pay for infrastructure investment could draw bipartisan support.
- GOP may have budget reconciliation option to avoid Senate 60-vote filibuster threshold.
- New rules requiring dynamic scoring could lower rate-reduction costs.
- Goal of revenue neutrality reduces budgetary pressures of rate cuts.
Working Against Tax Reform
- GOP may consider repeal and replacement of the Affordable Care Act a higher priority.
- US multinationals’ effective rates largely in line with OECD averages, which could reduce political support.
- Senate rules require 60 votes (eight Democrats) to pass legislation.
- Budget reconciliation rules can impose budgetary “straightjacket” and diminish how policy options are viewed.
- Use of repatriation revenue to pay for spending could be considered a violation of the pledge against raising taxes signed by more than 250 legislators.
- Little precedent for use of dynamic scoring in official revenue estimates. Its benefits could “prove to be de minimis,” KPMG states.
- Revenue neutrality increases the likelihood of winners and losers.
With that in mind, we’ll jump to the section of Understanding the Tax Reform Process: FAQ that focuses on how businesses can prepare for what could be significant changes to the tax laws.
The key here is to monitor proposals that come down the Beltway and how they progress, figure out how those proposals might affect businesses, factor in the likelihood of changes into current plans, and give legislators plenty of feedback, the report states.
Here’s a snapshot of what KPMG suggests businesses do:
- Read the House GOP blueprint for tax reform (KPMG has its own comparison).
- Evaluate how the GOP blueprint could affect business and what aspects of that possible implementation are unclear.
- Review the American Business Competitiveness Act of 2015 (H.R. 4377) and the 2005 Advisory Panel Report for indications of how certain details may evolve.
- Consider how business plans may be affected by blueprint proposals.
- Develop an economic model of possible reforms and their impact on businesses. Don’t forget “alternative scenarios” – as KPMG puts it – for blueprint aspects that aren’t clear.
- Get the C-suite involved. Discuss the company’s possible tax burden and the effect of changes on products, business models, competition, and the economy.
- Stay on top of this. It’s going to be a fluid situation with ongoing developments.
- Who else can companies engage to help? KPMG mentions trade associations and industry groups, for starters.
- Evaluate what should be fought for and what could be reasonable options. That includes carve-outs.
- Develop proposals for transition rules.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.