Many Corporate Tax Professionals Favor a Flat Tax for U.S.by
Tax reform talk in Washington is heating up again. In this current climate, what’s on the “wish list” of high-ranking corporate tax professionals? According to a new survey conducted by accounting giant Ernst & Young, a flat tax is first by a wide margin.
The results of EY’s survey were announced on April 26 during the firm’s 12th Annual Domestic Tax Conference in New York. The survey reflects responses from 330 tax professionals who registered for EY conferences in New York and Chicago this year.
The Trump administration recently renewed its call for sweeping tax changes and provided some general outlines. Keeping that in mind, the flat tax emerged as the clear preference among five hypothetical tax regimes posed to survey respondents, being chosen by 34 percent. Presumably, the flat tax system would eliminate the current group of deductions and credits used to reduce tax liability.
The second-favorite tax regime, chosen by 22 percent of tax professionals, was a value-added tax (VAT) to balance lower income or fewer indirect taxes. Somewhat surprisingly, it was followed closely by the controversial border-adjustment tax, although 29 percent also ranked the border-adjustment tax as the fifth of the five options. In comparison, the VAT was ranked last by only 11 percent of respondents.
“Regardless of the fate and style of comprehensive tax reform, tax professionals do anticipate tremendous change in tax credits and incentives,” Kate Barton, EY Americas vice chair of tax services, said in a written statement. “Among survey respondents, only 39 percent believe jobs-related incentives will be continued throughout the Trump term, and just 29 percent expect repatriation and research benefits to last through his term.”
Undoubtedly, major tax reform could also create havoc in the states, especially if the current tax regime is overhauled. Survey respondents were attuned to the possibilities with more than half – 58 percent, to be exact – predicting a patchwork of changes. Another 27 percent believe the states will leave their policies as status quo until new federal policy takes effect, while 15 percent expect states to fall in line with wholesale tax reform.
“Once federal tax reform is enacted, be ready for the state tax rebound,” Barton noted. “They will at least need to patch and adjust according to the effect on their coffers.”
Will accounting professionals be ready to deal with significant tax reforms? Based on the survey, some firms are already gearing up, but others are woefully unprepared.
More than one-third (36 percent) anticipate needing all hands on deck should tax reform legislation be enacted. At that point, they will need to rethink and manage the impact on the entire organization’s structure.
The same-sized group says it is prepared with modeling and has the staff and technology ready to manage the challenges.
More than one-quarter (27 percent) believe they aren’t ready. Of those, 13 percent say they will not be able to revamp systems without at least two-year rollouts of any new tax policy. The remaining 14 percent expect to have a team in place to update systems and technology by 2018.
In preparation for tax reform, 29 percent of respondents are spending as much or more time than last year on activities like modeling and educating policymakers. Almost 40 percent of organizations are investing in new tax management technology or new enterprise-wide systems that make tax function more efficient, but the majority (61 percent) has yet to invest significantly in technology.
Tax reform is far from a reality, but you should be aware of the potential consequences for your firm and your clients. Keep a close watch on the proceedings in our nation’s capital.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...