Business and tax leaders appear more optimistic about the possibility of US tax reform than they have in decades. While this feeling is fueling a surge in companies’ stock prices and optimism is in the air at any tax conference these days, could there be any risk that tax reform will not occur?
The hopeful mood concerning the possibility of major US tax reform, which would include a significantly lower corporate tax rate, was evident at the Tax Council Policy Institute’s (TCPI) annual policy and practice symposium last month. Tax reform discussions were featured prominently at the event – not a surprise, given its theme: “Tax Policy in Transition: Diverging Views in a Converging World.”
“We are ready, and we are moving forward aggressively to make tax reform a reality in 2017,” asserted keynote speaker Rep. Kevin Brady (R-TX), who serves as Chairman of the House Ways and Means Committee. Brady also noted, “Over the coming months, you will see our Committee pushing ahead with efforts to turn the bold ideas of our Blueprint into comprehensive tax reform legislation.” (Rep. Brady’s remarks are available for download at the TCPI event site.)
Clearly, there are sound reasons for optimism. After all, the execution of meaningful and significant reform only tends to happen once in a tax professional’s career. Not only does this refer to the all-Republican sweep of the House, Senate and Presidency, but also to a President who is committed to tax reform and willing to negotiate with both legislative branches to get it done. So what are companies doing to prepare? A poll of conference attendees showed that more than 80 percent of tax departments are monitoring the current tax reform proposals, and are beginning to evaluate the potential impacts on their companies — namely on Effective Tax Rate and cash tax planning. In addition, many are concerned about tax planning in general. This includes the rewinding of any current tax planning, and how to plan now for efficient business operations given the uncertainty that exists with US tax reform coupled with EU State Aid and BEPS. One tax leader said, “I hope my company does not make any drastic business/operational changes requiring significant tax advice, as I don’t know what to tell them right now.”
As conference presenters and attendees waded deeper into discussions about the structure and impacts of potential tax reform, a realistic question cropped up: what happens if US tax reform doesn’t occur? The short answer was not great for companies and jobs. With that, the optimism in the air dissipated for a time.
Tax reform is not easy – after all, it hasn’t occurred in this country in more than 30 years. While tax and business leaders remain hopeful that meaningful and comprehensive tax reform will occur, they also recognize the risk that it may not happen, and they must consider what failing to deliver this reform that they believe is necessary, will do to their business operations.
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