Recently, the Kogod Tax Center at American University and Bloomberg BNA released the results of a survey where advisers of both small businesses (less than $10 million of gross receipts) and medium-large businesses were asked how they would rate 15 tax reform proposals. The result was that 7 had similar support from both groups. Per the Kogod website: "The findings provide strong evidence that any tax reform bill would have to contain these measures to win the support of businesses."
The seven reforms:
- 100% expensing of assets
- a lower tax rate for corporate and passthrough entities
- reduced payroll taxes for employees
- elimination of the estate tax
- clarification of rules on worker classification
- replace the income tax with a national sales tax or other consumption tax
- a single, flat rate income tax
Looking at more details of the survey, the top reforms desired by small businesses are not listed above - repeal of the AMT which was tied with lower payroll taxes for employers. The top reform for medium-large businesses was 100% expensing of assets.
I encourage you to read the article on the survey, written by Dave Kautter, managing director of the Kogod Tax Center (and formerly a partner in the Ernst & Young National Tax Practice, and my boss a long time ago.)
Some observations I'd like to make:
- One possible way that has been suggested to pay for a lower corporate tax rate is to change from MACRS depreciation to Alternative Depreciation System (ADS) with longer lives and slower methods. I think this flies in the face of trying to make U.S. firms more competitive internationally (see my article on challenges of reaching a lower corporate tax rate - here). The Kogod/BNA survey indicates that businesses want to move in the other direction - immediate expensing of assets! How will this affect efforts to lower the corporate tax rate in a revenue neutral manner?
- Reform discussions and the realities of finding revenue offsets to extend the 2001/2003 tax cuts for everyone and lower the corporate tax rate likely means that while we might see a lower corporate tax rate in the near future, we will see higher taxes on high income individuals including on qualified dividends. This all makes it difficult to know the tax rate any business is truly taxed at. Why not move to a system where all businesses are taxed the same with elimination of double taxation in the process?
- Why do businesses want lower payroll taxes for employees? What about future shortfalls in the Social Security Trust Fund and the increase in the number of retirees to workers?
- Replacing the income tax with a consumption tax would be a risky experiment. It also is contrary to international competitiveness in that other countries have a VAT and an income tax.
