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Tax Reform Optimism Waning Among Practitioners

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Aug 12th 2015
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Will 2017 finally be the year that Congress passes tax reform legislation? Many business tax professionals think so, according to the June Tax Reform Business Barometer from Ernst & Young LLP and the Tax Council.

Forty-one percent of the 84 US tax executives and practitioners who completed the survey believe tax reform will happen in 2017 or earlier, down from 52 percent in the January 2015 Barometer. Thirty-one percent indicated that 2017 is the most likely year that tax reform will be enacted.

While 40 percent of respondents think Congress will pass comprehensive reform affecting both individual and corporate taxation, more tax practitioners view business-only or international-only tax reform as more likely. Sixteen percent think tax reform will affect only corporations, while 22 percent say tax reform will affect all businesses, including pass-throughs. Twenty-two percent say the most likely area for reform is international.

In the January report, which didn't include the option for international-only reform, 12 percent and 47 percent of respondents thought tax reform would affect only corporations or all businesses, respectively, while 41 percent thought reform would be comprehensive.

“If the corporate tax base erodes so much because of all of these international rules, or because of our absolutely inferior tax system or tax treatment of US corporations, we won't have a tax base with which to actually reform our tax code,” House Ways and Means Committee Chairman Paul Ryan (R-WI) recently told the Wall Street Journal in an interview. “So for those of us who want comprehensive tax reform, we think it's important to make sure that we stabilize our tax base so we can get to that day.”

Business tax professionals gave a median expectation of 25 percent that Ryan will release a specific tax reform plan by the end of 2015, down from 50 percent in January. Respondents also provided medians of 10 percent and 1 percent that the House Ways and Means Committee will mark up tax reform legislation and the panel will pass this legislation, respectively, according to the report. Respondents gave a zero percent median likelihood that the House of Representatives will pass tax reform legislation this year.

There is a 20 percent median likelihood from tax practitioners that Senate Finance Committee Chairman Orrin Hatch (R-UT) will release a specific tax reform plan by the end of 2015. They also reported a zero percent median likelihood that the full Senate will pass tax reform legislation by the end of the year.

Other key findings of the June 2015 Barometer include:

  • Sixty-one percent expect tax reform will be revenue-neutral rather than raise revenue, 30 percent said it will raise revenue, and 9 percent think it will reduce revenue.
  • Respondents said the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting project will result in the most significant change to global income taxation in 2017 (35 percent median response) as compared to 2015 (5 percent median expectation).
  • Fifty-four percent believe that tax revenues will be raised for the Highway Trust Fund and related transportation infrastructure spending. Respondents indicated that funding is most likely thought to be provided by miscellaneous measures (50 percent) or an increase in the federal gas tax (20 percent).
  • Sixty-nine percent said it is more likely that the tax provisions that expired at the end of 2014 will be extended in the second half of 2015. Others said they anticipate extensions occurring in 2016 or later (19 percent) or not at all (4 percent).
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