However, the question remains as to whether bipartisan
agreement on tax reform can be reached now, as it last was in
House speaker John Boehner has referred back to that
bipartisan Tax Reform Act 1986 as a model for how Democrats and
Republicans can work together to address the national debt and
spur economic growth through reform.
"By working together and creating a fairer, simpler, cleaner
tax code, we can give our country a stronger, healthier
economy," he said. "There is a model for tax reform that
supports economic growth; it happened in 1986 with a Democratic
House run by Tip O’Neill and a Republican
President named Ronald Reagan."
The Business Roundtable (BRT) has gone to the
extent of outlining a to-do list for the White House and
Congress in the wake of the election outcome, including a plea
for the adoption of a competitive US corporate tax rate,
comparable to the OECD average, and a competitive market-based
tax system similar to the rest of the world.
"This year has witnessed policy gridlock and economic
stagnation," said a BRT spokesperson. "Now the election is
behind us, America’s business leaders are focused
on making 2013 a better year for the US economy."
"Lack of political will by our leadership in Washington is
immobilising us," said Scott Davis, chairman and CEO of UPS.
"Our national debt increases about $3 million every minute. Our
leadership needs to adapt to the economic realities, take a
disciplined approach, and most importantly, ACT."
The CEOs – who want, as a minimum, expired and
expiring provisions to be extended until comprehensive tax
reform can be enacted - among other measures – are
urging action through a series of advertising campaigns
directed at Washington policymakers. The first of these has
already been released.
"If the last debt ceiling discussion was playing with fire,
this time they’re playing with nitro-glycerine.
It’s important to recognise the stakes have gone
up across the board when you combine the debt ceiling with the
fiscal cliff," said David Cote, chairman and CEO of Honeywell
International, a technology company.
As in 1986, there are certain issues which have garnered
bipartisan support already.
"The good news is there is bipartisan consensus on some of
the key issues – President Obama and Congressional
leaders generally agree the corporate tax rate is too high and
our international tax system is in need of reform," said Pam
Olson, PwC’s Washington National Tax Services
Leader & US Deputy Tax Leader.
Dealing with tax preferences
At the Wall Street Journal CEO Council last week, former
chairman of Obama’s council of economic advisers,
Austan Goolsbee, warned that a corporate tax rate reduction
would probably necessitate the removal of accelerated
The ability to expense initial investment is a highly
favoured tax break among taxpayers, particularly those in the
manufacturing sector. Such a move would therefore be unpopular,
but Goolsbee says it may be required to offset a tax rate
While certain lawmakers have asserted that nothing is off
the table when it comes to the consideration of which tax
breaks to remove, Obama has previously said he believes the
manufacturing sector is vital to the US’ economic
recovery, so he may be averse to remove one of the
industry’s most-loved tax credits.
Obama is not the only one to have recognised the importance of the manufacturing sector,
and this too may lessen the chances of Goolsbee’s
warning coming to fruition.
"When it comes to our tax code, Governor Romney and I both
agree that our corporate tax rate is too high. So I want to
lower it, particularly for manufacturing," said Obama.
"Manufacturing is not only a key part of our economy but
moving forward, it will remain critical to our
nation’s economic vitality," said Heather Boushey,
senior economist at the Center for American Progress. "Without
a vibrant and innovative manufacturing base, we will not be a
global leader for long."
Boushey testified in front of the House Ways
and Means Committee in July and said that last year,
manufacturing contributed more than $1.8 trillion to US GDP, or
about 12% of the economy. From an employment point of view,
manufacturing jobs also have the highest multiplier effect.
"To put this in perspective, each job in motor vehicle
manufacturing creates 8.6 indirect jobs, each job in computer
manufacturing creates 5.6 indirect jobs, and each job in steel
manufacturing creates 10.3 indirect jobs," said Boushey.
However, Treasury Secretary Timothy Geithner, also speaking
at the WSJ’s Washington event, said limiting tax
breaks will not be a sufficient revenue-raiser. This comes in
the wake of Obama’s proclamation that he wants
$1.6 trillion in additional tax revenue in the next 10
But a KPMG report, released on Friday, has shown
that business leaders are recognising they must give up certain
tax preferences to allow for a reduction in the corporate tax
"In a survey of more than 680 business executives, almost
80% of respondents from both US domestic and multinational
companies said they would be willing to accept the repeal of
certain tax incentives in exchange for the lower overall tax
rate," said a KPMG press notice that accompanied the survey
According to KPMG, among reform supporters: 68% said they
would be willing to give up accelerated depreciation, 66% said
they would give up the manufacturing deduction, and 52% said
they would give up research and experimentation tax
These figures are somewhat surprising, but Hank Gutman,
principal with KPMG and former chief-of-staff of the US
Congress Joint Committee on Taxation, said the statistics show
recognition that all preferences must be considered as on the
table if a lower rate is to be achieved.
"Business leaders understand the fiscal challenges of the US
and are increasingly recognising that a hard stance on
incentives, with respect to corporate tax reform, will not
work," said Hank Gutman, principal with KPMG and former chief
of staff of the US Congress Joint Committee on Taxation. "They
know that for effective reformation of business taxation to
take place, incentives once considered untouchable need to be
up for debate."
The survey also revealed that only 16% of respondents expect
fundamental tax reform in 2013. This indicates that few have
confidence in the comments of, for instance, House Ways &
Means chairman Dave Camp, who has vowed action in
In addition, 25% expected reform by 2014, while 29% expected
it by 2015 or beyond. 30% said they were unsure when any reform
would be enacted.
Despite the lack of faith business leaders seemingly have in
action before the end of the year, Olson said a framework for
reform could well be in place pre-2013, enabling expedited
reform next year.
"The most immediate next step is for the Obama
Administration and Congress to reach an agreement on US fiscal
cliff issues before the end of 2012. That has to happen before
Obama and the next Congress can address the details of
comprehensive tax reform legislation," said Olson. "A fiscal
cliff agreement could set forth a specific tax reform framework
for the next Congress that would speed up the process."
Olson said there is also a possibility that further action
could be taken this year, but that this hinges on whether Obama
and Congress can agree on legislation addressing the expired
and expiring individual tax provisions. However, she remains
"If no compromise can be reached in the lame duck session on
individual rates, it is highly likely legislation on expired
and expiring business tax provisions will be delayed until
2013. Comments from both Republicans and Democrats provide some
reason for optimism that a deal is attainable before