Senior Execs Skeptical of Fiscal Cliff Resolution

As talks drag on between President Obama and House Speaker John Boehner, R-Ohio, many business leaders believe there will not be an agreement to avoid the fiscal cliff before the end of the year, according to a new poll by KPMG.

Obama and Boehner reportedly met on Thursday afternoon for about 50 minutes, according to the Washington Post, but remain far apart on the key issues of taxes and spending. Boehner planned to leave for a weekend trip to Ohio with no further meetings on his schedule.

The KPMG survey revealed increasing skepticism among business leaders that there will be a resolution in the next few weeks to avert the expiration of the current tax rates and onset of steep automatic spending cuts. The firm polled more than 2,500 senior business executives during a webcast last week and found that 48 percent of respondents said they did not expect an agreement on the “fiscal cliff” by Dec. 31, while 32 percent said that they thought there would be resolution by the year-end. Some 19 percent were not sure.

Meanwhile, 77 percent of the survey respondents are on the lookout for a temporary “stop gap” measure. The survey also revealed that 33 percent of those polled don’t expect any business tax reforms until beyond 2015.

“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 Dec. 31,” said Hank Gutman, principal and director of KPMG’s Tax Governance Institute and a former chief of staff of the U.S. Congressional Joint Committee on Taxation. “Prudent companies are taking steps now to assess the potential implications.”

Fifty-five percent of the survey respondents said they would like to see a combination of government spending cuts and tax rate increases on higher-income individuals as part of the agreement, 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; 22 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 do not 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,” said Gutman. “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.”

Approximately 40 percent of the survey respondents believe the “fiscal cliff” has been a significant issue over the past 12 months with regard to economic recovery in the United States. Forty-nine percent feel hiring by U.S. businesses will be the most important driver of any economic recovery over the next 12 months. In addition, 45 percent feel that increased certainty about U.S. taxation for individuals and businesses would have the most significant impact on economic recovery in 2013.

A replay of the video webcast is available here.

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