We asked our Top 100 People candidates if they think we are likely to see large-scale tax reform in the next year. Their prognostications varied wildly.
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Because this is an election year, in the short-term, it is likely that some tax cuts will be extended for a period of time -- at least for the majority of taxpayers. Even so, many people and businesses will see some level of increase next year. In the longer term, it is too soon to tell what form any tax reform will take. While both President Obama and Mr. Romney have touted large-scale tax reform, such action will likely need to be addressed within the larger framework of a deficit solution and the fact that our economy is still fragile coming out of the recession.
Joe Adams -- Managing partner and CEO, McGladrey LLP
No, Congressional gridlock will not be broken, so nothing pertaining to taxation will change. We have a history of using taxation to promote political, social and economic policies. All of a sudden throwing these all out the window will run in the face of sound reason and voter desires. Nothing is going to change, in my opinion.
Dave Albrecht -- Professor of accounting, University of South Carolina Upstate
No, I expect that though tax will be a large part of the discussion leading up to the November elections, little action will be taken before the end of the year. I do think that the next Congress will make reform a priority, however, as consensus is building that the current system is flawed. What direction that reform takes will vary widely depending on the outcome of the November elections.
Mark Albrecht -- CEO, XCM Solutions/Xpitax LLC
I do not believe so. Tax reform is like a balanced budget: Everyone says they want it but everyone wants a different version of it. In addition, lower rates mean giving up deductions, and surveys consistently show the public is not willing to give up deductions (home mortgage interest, for example), even for lower rates. Absent consensus, tax reform will be difficult to achieve.
John Ams -- Executive vice president, National Society of Accountants
I am skeptical about large-scale changes other than items scheduled for expiration. I don’t see the will to compromise in either political party. Maybe there will be a “mandate” based on the outcome of the elections.
Rick Anderson -- Chairman and CEO, Moss Adams
We might have better odds at a Black Jack table in Las Vegas then getting the answer to this question right. There are several factors that influence the answer. The first, and most important, is the outcome of the 2012 presidential election. There are three scenarios:
• Republicans win. If the Republicans win we will certainly see cuts in the corporate tax rate and most likely the continuation of the “Bush-era tax cuts.”
• Democrats win, but don’t sweep the Congress. This would be a status quo scenario and we would not see any tax reform for at least the next two years.
• Democrats win and sweep the Congress. This would provide the Democrats with an opportunity to revise the current tax situation. You would see some reduction in the corporate rate, an increase in the capital gains rate. The challenge will be to reform the Tax Code so that it encourages economic growth and at the same time bring in more revenue.
The election is only one part of the equation. There are several tax policies set to expire or take effect in 2013. Those include:
• American Opportunity Tax Credit expires.
• Child Tax Credit reduced from $1,000 to $500 per child.
• Reduction in marriage penalty expires.
• Alternative Minimum Tax patch expires.
• Estate tax increase.
• 100 percent business expensing expires.
• New health care taxes take effect.
Being a betting man, I would think that unless the economy really picks up, there will be minimum tax increases. If all the Bush-era tax cuts were reversed immediately, it would have a draconian effect on the U.S. economy.
August Aquila -- President and CEO, Aquila Global Advisors, LLC
The tax landscape is extremely unstable right now for political and economic reasons and there is no way to know whether major tax reform will be enacted. The fact is that regardless of the outcome of the election and regardless of whether the government makes any move or not, change will occur.
We’ve been talking to our clients about this since the fourth quarter of last year. We know the Bush tax cuts, which have been extended by two years, are due to expire at the end of this year. If Congress fails to act on reform, which is possible, the consequences will still be automatic and tremendous. The corporate tax rate will go up to 38.6 percent; dividends will be taxed as ordinary income instead of at capital gains rates (and capital gains rates will increase from 15 to 20 percent). The estate tax exemption will plummet to $1 million and the amount you can gift will also decrease to $1 million. These changes are automatic and are currently prescribed by law. Locally, there is also a lot of uncertainty around the question of what will happen in California with Governor Brown’s push to increase taxes.
If the federal government does act, the question becomes one of magnitude. What will they change and when? Our clients are sophisticated enough to understand that uncertainty is part of the landscape nowadays. We are preparing them by offering scenarios and strategies to match those scenarios. We will implement these when things become clear or at least clearer.
Andrew Armanino -- Managing partner and CEO, Armanino McKenna
Yes. I think we are likely to see some type of large-scale tax reform over the next year. But predicting what kind of reform we might get really comes down to projecting who will win the presidential election, and I don’t think anyone’s in a position to make that call yet.
Erik Asgeirsson -- CEO, CPA2Biz
There will be some type of reform but not as sweeping as some are predicting.
Kenneth Baggett -- Managing principal and CEO, Reznick Group
I subscribe to economist David Ricardo’s statement that “Taxation under every form presents but a choice of evils.” Thus, I’m a huge proponent of a flat tax, and was naïve enough in my youth to believe it was possible. I’m much less sanguine now. Congress doesn’t want to give up the power the Tax Code gives it to dole out goodies for votes. I see no political leadership on the horizon -- in either party -- that leads me to believe we’ll get anything more than mere tinkering with the Tax Code. It’s a shame, but one must live in Realville, not Utopia.
Ron Baker -- Founder, VeraSage Institute
Most certainly the next year will require many changes. After the election and hopefully before the end of the year we will see some level of extension of the Bush tax cuts, although it is hard to determine currently the form that will take. In 2013, I think that the chance of large-scale reform is low, given the current partisan polarization in the House and Senate. Of course the outcome of the November elections can change that. Regardless, we will see many changes next year, but contrary to what many are saying, I don’t believe that they will be a complete overhaul of our tax system. I believe that we are a long way from that.
Jonathan Baron -- Managing director, Professional Segment, Thomson Reuters Tax & Accounting
President Obama put forth a “framework” for business tax reform earlier this year and Gov. Mitt Romney, the GOP’s presidential candidate, promises a “fairer, flatter and simpler” tax if elected. Each has his own proposal, but with the current partisanship in Congress, I remain unconvinced that sorely needed tax reform will take place within the next year, although there may be some shared appetite for revisiting the corporate tax rate. Any attempt at “reform” will not work unless the entire system is overhauled. The last time we saw major federal tax reform, in 1986, it was a product of Democrats and Republicans from both houses working together to effect change. No such working relationship currently exists between the parties, and as long as each party controls one house I expect the stalemate to continue at the expense of the American taxpayer.