Nearly 80 percent of business executives said they would be willing to accept the repeal of certain tax incentives in exchange for a lower overall corporate tax rate, according to a new report  by KPMG.

The firm surveyed more than 680 business executives from both U.S. domestic and multinational companies. To achieve meaningful U.S. corporate tax reform, an overwhelming majority say they would be willing to give up important tax preferences—including the manufacturing deduction and the research & experimentation tax credit –for a lower statutory corporate tax rate. 

The survey also found that most respondents don’t expect any fundamental tax reforms until at least 2014 or beyond. They believe the new corporate tax rate will be 29 percent or less, down from its current statutory high of 35 percent.

Among those who support the concept of corporate tax reform, accelerated depreciation (68 percent) and the manufacturing deduction (66 percent) were the two most cited tax incentives that respondents were willing to give up. In addition, research and experimentation tax incentives were cited by 52 percent of respondents overall, the findings revealed.

“Business leaders understand the fiscal challenges of the United States and are increasingly recognizing that a hard stance on incentives with respect to corporate tax reform will not work,” said KPMG LLP principal Hank Gutman, a former chief of staff of the U.S. Congress Joint Committee on Taxation. “They know that for effective reformation of business taxation to take place, incentives once considered untouchable need to be up for debate.”

According to the survey, only 16 percent of respondents expect fundamental tax reforms in 2013, while such reforms were expected by 2014 by 25 percent of those polled and by 2015 or beyond by 29 percent. Thirty percent said they were unsure when any reform would be enacted.

The U.S. corporate tax rate is the top business tax concern among those surveyed (40 percent) followed by taxation of international operations (24 percent) and financial statement disclosure issues (17 percent). Of 289 domestic companies surveyed, 16 percent said that employee benefits and executive compensation is their top business tax concern.

“Many commentators believe that the goal of U.S. tax reform should be to replicate the results of the 1986 Tax Reform Act, which simplified the tax code, broadened the tax base and eliminated many tax preferences,” Gutman said. “But today the fiscal challenges are very different. The reality is that any corporate tax reform will have to be at least revenue neutral, which will create winners and losers in the business sector. As a result, some of the objectives being discussed for corporate tax reform may end up being mostly aspirational.”

CFOs, audit committees and boards who are discussing tax reform are, for the most part, not discussing the topic with their tax managers. O nly 11 percent said they were doing so. Instead, most discussions were taking place primarily with the finance executives and the C-Suite, according to the survey.

The survey also revealed that 36 percent of respondents said they felt the corporate tax system is seriously flawed and needs a complete overhaul while another 59 percent said the system has some flaws and needs some reform. Concerning a question on what those polled think is flawed about the U.S. corporate tax system, respondents most named a tax rate that is too high (76 percent) and foreign source income that is not properly taxed (51 percent).

If the corporate tax rate is reduced, an overwhelming majority of respondents (82 percent) expect the new corporate tax rate to be 29 percent or less, down from its current statutory high of 35 percent.  Of those respondents, 42 percent expect a rate of between 25 to 27 percent, and 22 percent expect a rate of 28 to 29 percent. Only 18 percent expect a rate below 25 percent.

“Reduction of the corporate rate is very important,” Gutman said. “Proponents believe this will make the U.S. more attractive to foreign direct investment and reduce incentives to move income off-shore. All proposals to date espouse a reduction of the corporate rate to 25 to 29 percent and assume a revenue neutral outcome. The unanswered question is how to achieve that neutrality.”

When asked how the government will make up for the revenue shortfall if the corporate tax rate is reduced to 30 percent or less, a 64 percent majority of respondents expect the government to reduce business tax preferences, while 25 percent of the audit committee/board respondents and 48 percent of CFOs expect the government to increase tax rates on the capital income of high-net worth individuals.

Concerning the possible adoption of a national consumption tax to generate additional revenue, 31 percent of respondents polled said they expect that the government would enact a value-added tax. When asked if they individually would support a VAT to lower the corporate tax rate, 67 percent said no or indicated they were not sure, while 32 percent said they would.

“To date, the business tax reform discussion has been long on concept but short on detail,” Gutman said. “In the zero-sum game that is created by budget constraints, the principal goal of significant rate reduction may be unattainable without an additional revenue source, such as a national consumption tax, financial transaction tax, or a form of energy tax.”

The majority (56 percent) of those polled said that lowering the corporate tax rate is seen as more important than reforming the taxation of non-U.S. source income. Forty percent of the respondents do not plan to be actively involved in efforts to shape the outcome of the corporate tax reform debate, while 33 percent were unsure about their plans.

In addition, 66 percent of the respondents said they were taking a “wait and see” approach to preparing for corporate tax reform because it has not yet achieved enough of a footing to warrant action.

KPMG’s “2012 Tax Reform Survey” was conducted by the firm’s Tax Governance Institute between July and mid-September of 2012. A total of 684 business executives were polled, including directors of tax, vice presidents of tax, chief tax counsels, chief financial officers, controllers, treasurers, audit committee members and chairs, and board members and chairs.