U.S. business executives are concerned about global competitiveness in light of the disparity between tax rates charged to their overseas competitors and the rates they are charged as U.S. corporations.
At the top of the list of tax concerns that they would like to see addressed are the enactment of revenue offsets without a competitive tax system or tax rates, the high statutory tax rate, and the taxation of international operations.
The executives shared their views as part of the Miller & Chevalier/National Foreign Trade Council 2014 Tax Policy Forecast Survey. In January, Miller & Chevalier and the NFTC distributed the survey via email to leading business tax executives, including vice presidents, directors and managers of tax at a broad cross-section of U.S.-based and foreign-based multinational corporations.
Industries surveyed include manufacturing, oil and gas, insurance, utilities, financial institutions, automotive, health care, defense, hospitality and agriculture, among others.
The U.S. business community overwhelmingly supports fundamental tax reform. However, the executives who responded believe that in light of pending changes in tax-writing committee leadership, the pending congressional midterm elections and competing legislative priorities— not to mention inherent differences of opinion regarding threshold issues such as revenue impact—tax reform has been pushed far down, if not off, the agenda for 2014.
“I’m not particularly surprised by the results,” said Marc Gerson, a Miller & Chevalier member and former majority tax counsel to the House Ways and Means Committee. “It’s productive for taxpayers to be looking at the continued discussion on tax reform, but 2014 will be an interesting and dynamic year, given the current legislative and political environment.”
“It is hard to see a path for reform to be enacted this year,” said Gerson. “The debate and discussion will continue, and we encourage taxpayers to continue making comments on different drafts, but tax reform is a long-term proposition. We’re trying to focus on short-term priorities, such as the expired tax provisions.”
“Senator Baucus [former chairman of the Senate Finance Committee] has been appointed ambassador to China, and Sen. Wyden [D-Ore.] has taken over as the new chairman,” said Gerson. “He has a demonstrated interest in tax reform. It will be interesting to see where his priorities are, but my feeling is he will probably start with a focus on the tax extenders. Meanwhile, Rep. Camp [R-Mich.] is term-limited under the rules of the House Republican Conference.”
“American businesses are looking for significant tax reform that will level the playing field with the rest of the world,” said Catherine Schultz, vice president for tax policy at the National Foreign Trade Council. “Survey results indicate that the distinct partisanship and lack of prioritization by the Administration has top executives concerned that the worldwide tax system and statutory tax rate will not be reviewed and reformed.”
The survey also revealed a divide among the tax executives themselves, according to Gerson. “When asked to pick the most significant tax reform issue, we got an even split between the two most popular answers: a high statutory rate and replacing the current international tax system with a territorial regime,” he said.
Nearly 70 percent of respondents picked one of these two answers. However, Brain Bieron, the Washington D.C.-based director of global public policy at eBay Inc., picked neither. Instead, Bieron gave a write-in response, citing “lack of agreement among the business community on overall goals” as the biggest impediment to reform.
Respondents singled out global competitiveness issues as the single factor that will have the most positive impact on tax policy in 2014, with 40 percent selecting it. The same percentage, 40 percent, picked Obama Administration priorities as the factor that will have the most significant negative impact on tax policy in 2014.
“This year, not one respondent thinks tax reform will happen,” Gerson observed. “That’s pretty stark.”
Anthony Rackley, vice president of tax at the Williams Companies, which focuses on midstream and interstate transportation of natural gas, noted that when you add up the government and taxpayer costs, we probably spend more per dollar collected to administer the tax system than any other nation in the world. “It’s horribly inefficient and a drain on the economy,” he said, adding that nevertheless, “real change is a major ordeal because there will always be winners and losers.”
“I would like for us to realize that we’re part of the rest of the world and as a country we’re not dominating as much as we did three or four decades ago,” said Rackley. “We need to be competitive, and that includes a competitive corporate rate and a competitive international structure.”