Short- and Long-term Outlook for Corporate Taxation
August 3, 2011
On Wed., Aug. 3, Ernst & Young held a Thought Center webcast on the short- and longer-term outlook for corporate taxation. The panel included Nick Giordano, Ernst & Young LLP, co-director, Washington Council Ernst & Young; Bob Carroll, E&Y, Quantitative Economics and Statistics (QUEST); and Barbara Angus, E&Y International Tax Services. (Editor's Note: Giordano, former chief tax counsel, U.S. Senate Committee on Finance, and Angus, former international tax counsel, U.S. Department of Treasury's Office of Tax policy, will be moderating panel discussions at the upcoming FEI Washington Policy Conference.)
The E&Y Aug. 3 panel was moderated by Mike Dell, E&Y, director, Ernst & Young Center for Tax Policy. The panel discussed the debt and deficit picture, current short-term revenue raisers and the status of longer-range tax reform efforts.
Dell began the discussion by outlining the specific agreements in the Budget Control Act and Giordano helped to explain the complexity of the act, noting that it is a “short-term solution to a long-term problem.” Giordano explained what to expect for legislative action throughout the year. He told companies to keep an eye out for a potential government shutdown in September because Congress has yet to take any action on the appropriations for the 2012 fiscal year, which is set to begin Oct. 1.
Carroll discussed the current state of the economy, explaining that it continues to be very sluggish. The housing and job markets both continue to be weak, the long-term fiscal outlook is poor as the annual deficit isn’t projected to go below $700 billion in the next 10 years. The debt held by the public is expected to grow to 87 percent of GDP by 2021 and U.S. spending is expected to increase rapidly because of the continued growth of entitlement programs.
Angus updated participants on current tax legislation and potential for tax reform in the future. She explained that congressional committees have had numerous hearings recently, averaging at least one a week. Overall, the discussions are moving in the direction of a lower corporate rate while eliminating all deductions. Though many people think a federal value-added tax (VAT) will provide enough revenue to finance a lower corporate tax rate and fix deficit issues, both parties have spoken out in opposition to a VAT or a fair tax.
Companies should continue to follow the legislation before Congress, as well as the new committee set up by the Budget Control Act. Panelists encouraged participants to decide what they would like to see change in the new tax code, and what issues they are willing to give up. It is important for companies to determine the key design points to be built into a tax code that they can support. The panel also stressed the importance of companies contacting their representatives from Congressmen who are involved in taxes to help the legislators make the best decisions.
Prepared Aug. 3, 2011 by Alexandra Sipes, legislative aide, Financial Executives International. This summary does not represent FEI opinion unless specifically noted above.