New survey: Taxmageddon paralyzes business plans

Despite a clear desire to pay lower tax rates, corporate finance chiefs say they are more focused on resolving tax uncertainty issues that will ensue once the Bush-era tax cuts expire along with other business-critical tax provisions in 2013.

By The Fiscal Times May 31, 2012 2:37PM
By Michelle HirschThe Fiscal Times

When it comes to taxes and economic growth, the most visible battle cry among businesses is to slash tax rates.  Multiple business advocacy organizations and a string of Republican lawmakers say dropping the top federal U.S. corporate rate from 35 percent to 25 percent would boost U.S. companies to hire, invest, and compete globally.

For corporate finance chiefs, however, lowering rates is not top of the agenda.  What worries them most is the whole slew of business-centric tax changes set to take effect in 2013 unless Congress steps in-- what economists have dubbed “Taxmageddon.”

A survey released Tuesday by tax firm Alvarez & Marsal Taxand shows that of 302 chief financial officers surveyed by, a majority said eliminating uncertainty in the tax code topped lowering tax rates on their wish lists..  About three-quarters of respondents represent firms with less than $1 billion in revenue, while the remaining quarter represent billion-dollar enterprises.

Nearly three-quarters of businesses perceive that lawmakers’ current tax reform proposals are too premature to determine how they will affect their businesses, the survey found.

“Confidence in knowing precisely what the tax code will require has become more important than how much it will cost them,” said Robert N. Lowe, chief executive officer of A&M Taxand.  “As long as proposed changes remain up in the air, companies will be forced to continue to burn fuel operating in holding patterns rather than charting productive courses forward.”

Some of the most consequential business-related tax code changes set to take effect next year include the expiration of the research and experimentation credit, a cut deducting certain business purchases from $500,000 to $125,000, the end of accelerated depreciation on certain business property, a rise in the capital gains rate from 15 percent to 20 percent, and taxing dividends as ordinary income at a top rate of 39.6 percent.

Perhaps of most consequence to small business owners is that the top individual tax brackets will rise from 33 to 36 percent and from 35 to 39.6 percent in 2013 if the Bush era tax cuts expire.  That’s because small firms can structure themselves as subchapter S corporations, partnerships or pass-through entities (LLCs), or sole proprietorships —the most common classification which accounts for about three-quarters of small businesses. Businesses organized in those formats pay individual income taxes in lieu of corporate income taxes. The total number of small businesses arranged this way shot up to 27 million in 2007 from 18.4 million in 1997, according to the Census Bureau.
 
Business advocates say that while slashing the corporate tax rate is a goal, the looming uncertainties about current tax law need to be front and center for the time being.

“Businesses right now feel immensely paralyzed by the fact that they have no certainty,” said Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce. Harris and the Chamber support overhauling the tax code to lower corporate tax rates and revamp the individual tax codeBut the immediate priority is extending the Bush-era tax cuts and extending these expiring tax provisions. “They don’t know what their rates are going to be in six months, what deductions and credits are going to be in the code, and they have no idea what’s going on with bonus depreciation and expensing…Right now, that’s what needs to be taken care of.”

However, other tax experts take a different view.  Martin Sullivan, a former Treasury Department economist and contributing editor at Tax Analysts says he’s puzzled by the business community’s preoccupation with tax uncertainty over rates.  “To say uncertainty is the cause of all businesses problems now or is an excuse for not investing in their long-term future is not rational. Businesses always face uncertainty, and let’s face it.  Even if a tax law gets passed, you have very little certainty that that will be tax law five years from now.  In fact, you can almost guarantee it won’t be,” Sullivan said.
 
He said he does not believe that any business executive would realistically be more concerned about uncertainty in the tax code than the level he or she is being taxed at.  “I think this is a line businesses have adopted to put political pressure on Washington to lower their taxes.  What they’re really saying is they want a tax cut because that’s the only way their uncertainty can be resolved given their firm no-tax increase negotiating positions.”

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Michelle Hirsch is a national correspondent at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.


9Comments
Jun 1, 2012 7:00AM
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Instead of raising taxes on business and the middle class, how about we cut off all entitlements to illegal aliens and change the law to what other countries have done with illegal's baring children on their soil. If your mother or father is not an American, neither is the child. Noore free public school education, no more food stamps, no more child tax credit, no more free health care, no more welfare.   
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It's simple...we don't need anymore taxes, just better stewardship over those we already collect!
Jun 4, 2012 2:22PM
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The answer is very simple do what it takes to have real cuts to spending and suspend the BS.
Jun 5, 2012 11:07AM
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Not sure what politicians are b!tch!ng about now...

 

Let (all) the current tax rates expire, Dems get their revenue increase. 

 

Allow sequestration ($600B from DoD, $600B from other programs, Repubs get their budget cuts.

 

Sounds like a win-win, compromise, whatever they want to call it.

Jun 4, 2012 5:31PM
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They don't pay taxes so what difference does it make? That's like a welfare mom complaining that taxes are too high. These clowns can't even be honest in an anonymous survey.
Jun 4, 2012 7:50PM
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a simple tax rate that all can base their decisions on. That's what we need.

 

How about ten %, if the government can't live on ten percent, too bad- stop spending so much.

 

Get the government out of everything but national defence, let the states run their own show.

 

That way when a state gets crazy, peolple move to another.

 

 

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For  "The Cruise Lady" I suggest you do a fact check before putting things into print. I have cut and pasted GE's filings with the SEC for tax year 2011.  It doesn't require rocket science to compute that GE had an income tax rate of 28.5% on their income.

Income Before Tax 20,098.0                                                                          
Income Tax - Total 5,732.0

 

 

 

 

Jun 7, 2012 12:39PM
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Big corporations don't pay taxes now.  Look at GE and Cisco, among others.  They've moved their income offshore, to places like Switzerland, Liechtenstein, and other places that don't tax them.

It's the small businesses, with fewer than 50 employees, who pay the taxes. 

Jun 3, 2012 8:31PM
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Please tell. Just how many jobs will be created by that policy? Your ignorant rant has nothing to do with the topic here.

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