Almost half of senior executives polled said they don't expect an agreement on the so-called "fiscal cliff" negotiations by year-end, according to a survey of more than 2,500 business leaders conducted by KPMG's Tax Governance Institute (TGI) earlier this month.
In the survey, 48 percent of respondents said they don't expect an agreement on the fiscal cliff by December 31, while 32 percent said they thought there would be resolution by year-end. Some 19 percent weren't sure.
At the same time, a vast majority of respondents (77 percent) are also on the lookout for a temporary "stop-gap" measure on the looming issue which, if left unresolved, would result in a combination of tax increases and forced spending cuts on January 1.
KPMG's Hank Gutman, principal and director of the TGI and former chief of staff of the US Congressional Joint Committee on Taxation, said: "It's clear from our survey findings that the business community doesn't think the government will be able to resolve the fiscal cliff by December 31. Prudent companies are taking steps now to assess the potential implications."
In any agreement, 55 percent of respondents said they would like to see a combination of government spending cuts and tax rate increases on higher-income individuals, while 32 percent said they would most like to see cuts in government spending, including entitlement programs.
Some 54 percent of respondents expect any agreement to include the extension of the 2001/2003 tax rates for those with income below $250,000, but not for taxpayers with income of $250,000 and above. Twenty-two percent said there would be agreement on a plan that would temporarily extend all current tax rules.
In addition, the survey revealed that 33 percent said they don't expect enactment of any business tax reforms until beyond 2015; some 26 percent said they expect reform in 2014. Only 11 percent said they expect business tax reform in 2013.
If the corporate tax rate is reduced, most respondents (38 percent) predicted that the new rate would be 28-29 percent, while a quarter of respondents (26 percent) said they see the rate falling to 30-31 percent. Eighteen percent said the rate would go to 25-27 percent.
"Lowering the corporate tax rate from its current 35 percent to 25 percent in a revenue-neutral manner will not be easy. The cost of reducing the rate is going to have to be offset in some way, and that offset is likely going to come out of the business community", Gutman said.
In other survey findings, all focused on US economic recovery:
- Some 40 percent of respondents believe the fiscal cliff has been a significant issue over the past twelve months with regard to economic recovery in the United States.
- Forty-nine percent feel hiring by US businesses will be the most important driver of any economic recovery over the next twelve months.
- Forty-five percent feel increased certainty that US taxation for individuals and businesses will have the most significant effect on economic recovery in 2013.
The survey reflects the responses of more than 2,500 members of the Tax Governance Institute - including board and audit committee members, chief financial officers, and tax directors - who participated in the TGI's December 6 video webcast",Gutman, Kies, Talisman Address the Fiscal Cliff and Tax Reform." A replay of the video webcast is available here.
Part of the KPMG Institute Network, the Tax Governance Institute provides opportunities for board members, corporate management, stakeholders, government representatives, and others to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk.
SOURCE: KPMG LLP