CFOs expect corporate tax rates to go up after election
A majority of CFOs and other C-suite executives anticipate corporate tax rates will rise after the election, no matter whether Donald Trump or Joe Biden wins in November, according to a new survey by PricewaterhouseCoopers.
PwC’s Road to Election 2020 Pulse Survey polled 578 CFOs and other executives to determine the general election’s impact on the business environment. The survey found that if Biden wins, more executives are likely to increase their efforts around tax planning in anticipation of changes to U.S. corporate tax and other tax policies. If Trump is re-elected, more executives are likely to increase investments in their companies’ supply chains, given the tensions between the U.S. and China over trade. Nevertheless, no matter which party controls Congress or the White House, 70 percent of the respondents believe that business tax rates will rise to pay for COVID-19 relief, and 63 percent predicted trade restrictions between the U.S. and China will continue.
More executives are likely to increase their investments in tax scenario planning in the event of a new administration, at 57 percent for a new administration under Biden, as opposed to 43 percent if the Trump administration remains in office. Companies are also investing as they look to a future beyond COVID-19.
“Companies are making decisions for the future and investing to be stronger coming out of the pandemic,” said PwC U.S. senior partner and chair Tim Ryan during a conference call with reporters Tuesday. “There’s a significant focus on the workforce and what the workforce of the future looks like. This discussion has moved well beyond remote versus non-remote, but what does the model look like going forward. That means where work can be done, how work can be automated, how you’re handling culture and development at the same time, and also how do you create a flexible environment to attract the best talent. We are seeing companies look to the future and ask what does that model look like moving forward, and that has become very much a C-suite issue.”
He is seeing more companies investing in technology such as artificial intelligence and the Internet of Things, or IoT, and examining issues like diversity and inclusion in the wake of the Black Lives Matter protests over the killing of George Floyd and other Black Americans.
In the event of a second term of the Trump administration, more executives believe investments in their supply chains will increase (45 percent for the current administration vs. 37 percent for new administration). Regardless of the outcome of the U.S. election, 70 percent of the respondents agree that business tax rates will rise to pay for COVID-19 relief, regardless of the outcome of the election, with 35 percent saying they are in “strong agreement.”
“The result that I found a little bit surprising was the one that said 70 percent of those surveyed agreed that business tax rates will rise to pay for COVID-19 relief, regardless of the outcome of the election,” said Rohit Kumar, co-leader of PwC’s national tax office and former deputy chief of staff to Mitch McConnell. “At least as it relates to federal taxes, this surprised me because I’m fairly certain that if Republicans keep the Senate, then Mitch McConnell, the Senate Majority Leader, would not be open to increasing business taxes. I think executives are understandably reacting to the historic amount of deficit spending that COVID-19 has generated, so it’s natural that businesses will be asked to help shoulder the burden. That might eventually be the case, but so long as we have divided government, the odds of significant business tax changes at the federal level remain pretty remote.”
He acknowledged, however, that states may be forced to raise taxes to balance their budgets and other countries may raise taxes overseas. Trade tensions could also add to tariffs and supply chain problems.
“Focusing on the results of the upcoming election, one of the things we found interesting was that a majority of C-suite leaders believe corporate tax rates will rise and trade tensions will increase, regardless of the election outcome,” said Roz Brooks, U.S. public policy leader at PwC.
The executives surveyed think some type of fiscal COVID-19-related policy support is needed for the U.S. economy (95 percent) and for their businesses (78 percent).
While revenue forecasts have improved over the past few months as companies have adapted to operate in a COVID-19 environment, more than half the respondents (56 percent) still expect their company’s revenue and/or profits to decrease over the next 12 months as a result of the pandemic.
Nevertheless, 28 percent of the CFOs and other C-suite leaders polled by PwC expect an increase in revenue over the same period. As the general election approaches, the business leaders who responded to the survey would like the federal government to take action to help improve the current business environment. A majority of respondents indicated that a federal strategy to combat the pandemic is needed to boost consumer confidence (82 percent) and increase domestic production of essential goods (81 percent).
C-suite leaders acknowledge that investments are crucial to competitiveness in 2021 as they work to factor in responsiveness to various policy shifts. Sixty-three percent of the poll respondents predicted that trade restrictions between the U.S. and China would increase next year, regardless of the outcome of the election, while 28 percent “strongly agree.”
In terms of a desire for further federal support, 95 percent of the executives polled said some type of policy action is needed for the U.S. economy to help recover from the economic effects of the pandemic, but 20 percent said their own business needs no further fiscal policy support.
Eighty-one percent of the respondents said the federal government should implement a strategy to boost domestic production of essential goods to help the U.S. economy, and 46 percent said they “strongly agree.”
Separately, the PwC global network of firms announced a sustainability commitment Tuesday to net zero emissions by 2030. The firms committed to reducing their total greenhouse gas emissions by 50 percent in absolute terms by 2030. That includes a switch to 100 percent renewable electricity in all territories, as well as energy efficiency improvements in their offices and halving the emissions associated with business travel and accommodation within a decade. PwC’s global network also plans to invest in carbon removal projects, including natural climate solutions. For every remaining ton (CO2 equivalent) that’s emitted, PwC committed to remove a ton of carbon dioxide from the atmosphere, to achieve a net zero climate impact by 2030.