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INSIGHT 1
Business leaders in New York, New Jersey, Connecticut and Pennsylvania strongly support a variety of tax reform proposals under deliberation, while certain proposals proved to be somewhat contentious, according to a survey conducted by Friedman LLP in early 2017.
Not surprisingly, calls to reduce individual and corporate tax rates were the most favorably viewed proposals, followed by the elimination of the estate tax. In addition, respondents indicated a desire for tax reform at the international level, particularly relating to repatriating overseas profits. Other international proposals pointed to a need for clarification of complex issues.
Here’s what the survey* showed on the big issues of tax reform:
- Lower individual tax rates. 82% of the respondents rated this proposal as “somewhat” or “very” favorable; and half rate it “very favorable.” With the highest ordinary tax rates at 39.6%, the net investment income tax at 3.8%, and the Medicare tax at .9%, tax rates remain a primary concern.
- Lower corporate tax rates. 72% of respondents supported lowering corporate tax rates. Considering the business make-up of the survey respondents, it is somewhat surprising that the call to lower corporate tax rates scored second to lower individual tax rates. Similarly, Friedman’s 2016 tax survey of business leaders pointed to greater concern of tax issues impacting their personal financial situation. This concern can primarily be attributed to the use of pass-through entities such as S corporations and limited liability companies where the business income is taxed on the personal income tax return of the owner.
- Elimination or reduction of tax deductions. This issue elicited an interesting response, with 52% of the respondents stating they were “somewhat” or “very” favorable toward this proposal. Generally, a desire to lower tax rates goes hand-in-hand with a desire for more tax deductions. We believe this finding points to the desire for a more simplified tax code— as also suggested by responses examined in our 2016 study.
- Elimination of the estate tax. 64% of respondents were “somewhat” or “very” favorable towards this proposal, which also goes hand-in-hand with a call to lower individual tax rates. More than half of the respondents (53%) indicated they either don’t have an estate plan or have not reviewed it within the last 5 years. This underscores a concern commonly addressed by our tax professionals: that many individuals fail to create an estate plan or fail to frequently review and update their plan— risking exposure to potential tax consequences.
- Overhaul of international tax policies. Respondents would hesitantly welcome changes to international taxation. There was significant approval for a proposal that would allow companies to repatriate overseas profits at a reduced rate; 61% supported the policy. There were mixed results for a territorial tax system (51% in favor/25% indifferent) and for cross-border reporting requirements (57% in favor/21% indifferent), indicating a lack of enthusiasm for, or perhaps a lack of understanding of, these complex issues.
- Repeal of the Affordable Care Act (ACA) individual mandate/net investment income tax. 61% of respondents were “somewhat” or “strongly” in favor of repeal. But with the withdrawal of the AHCA, also known as TrumpCare, the mandate and tax put in place under the ACA/Obamacare will remain in place— at least for the short term. According to recent reports, the GOP has restarted negotiations, and a new version of the ACA repeal bill could be back on the table.
The chart below gives an overview of the respondents' support of the various tax reform proposals previously discussed, ranking left to right from the most strongly supported proposal.
So what does all of this mean? In short, the overwhelming support for broad-based tax reform reflects the fact that the current tax system has become too fractured and too complex. Many of these proposals would relieve some of the tax burdens that businesses face. Responses also indicate that certain tax laws—on the books and proposed— are simply not understood well- enough at this time.
Should you have any questions as to how these proposed reforms could affect you or your business, contact Dave McKelvey at dmckelvey@friedmanllp.com, Kim Dula at kdula@friedmanllp.com or your Friedman advisor.
Be on the lookout for upcoming tax reform insights:
- Insight 2: A majority of businesses would offer the same or more health benefits if ACA repealed.
- Insight 3:Companies using independent contractors are at risk for taxes and penalties.
- Insight 4: Questions loom over the net benefit of international tax proposals.
- Insight 5: Almost 40% of businesses selling online are not prepared for states’ broader interpretations of economic nexus.
- Insight 6: Businesses would likely alter their entity structure and finance models based upon tax changes.
*Friedman LLP conducted the web-based survey in early 2017 among companies across the United States, with a focus on the New York, New Jersey, Pennsylvania, and Connecticut areas. The survey compiles responses from 483 senior leaders of companies across industries including technology/computer services, manufacturing/distribution/wholesale, healthcare, retail, real estate, financial services, architecture/engineering, marketing and advertising, nonprofits, law, and more. The size of the companies surveyed ranged from below $10 million in annual revenue to over $500 million. The respondents include business owners, company presidents, chief executive officers, partners, directors, chief financial officers, controllers, and managing directors. All insights in this series are based upon the specific responses of the business leaders who participated in our survey.