Tax Reform Should Be Separated From Reforms To 'Entitlements' And Deficit Reduction, According To KPMG Survey

NEW YORK, March 13, 2013 /PRNewswire/ -- Tax reform should be separated from reforms to government entitlement programs and deficit reduction, according to more than half of business executives polled by KPMG's Tax Governance Institute (TGI), and almost 40 percent of those surveyed feel Congress should expand the reach of the corporate tax to include large "pass-through" entities, such as partnerships.

The survey of over 840 business leaders also revealed that if comprehensive tax reform efforts ultimately fall short in 2013, half of respondents (50 percent) believe specific proposals in the recently issued "Discussion Draft" from Congressman Dave Camp (R-MI) for reforming taxation of certain financial products could gain traction as part of a smaller tax reform bill.

Fifty-five percent of respondents to the KPMG survey said they thought tax reform should be separable from deficit reduction and reforms to entitlement programs, such as Medicare, Medicaid and Social Security, while 27 percent felt it shouldn't and 18 percent weren't sure.  Thirty-nine percent said they felt Congress should expand the corporate tax to include large pass-through entities, such as partnerships, S-Corporations and limited liability companies, which pass along taxes to the individual owners of those businesses. Thirty-one percent said Congress shouldn't expand the corporate tax to include pass-throughs and 30 percent were not sure. 

In addition, a full 50 percent of respondents said tax reform needs to be comprehensive while 31 percent think individual and corporate tax reform should move on separate paths.

KPMG's Hank Gutman, principal and director of the TGI and former chief of staff of the U.S. Congressional Joint Committee on Taxation, said: "Respondents clearly indicate that the time for comprehensive tax reform has come. Although the need to change the way in which business income is taxed is widely recognized, there is no consensus on the solution.

"Complicating the resolution is the fact that, according to the Treasury, as much as 70 percent of business income in the United States is earned by pass-through entities, such as partnerships, S-Corporations and limited liability companies, in which the income is not subject to corporate tax.  Depending upon how it is done, eliminating business tax preferences to finance a corporate rate reduction may result in a tax increase on the owners of pass-through enterprises, and that poses a political problem. It also shows that business tax reform cannot be separated from consideration of individual tax issues," Gutman added.

In another key finding from the survey -- conducted by TGI on a recent video webcast, "Comprehensive Tax Reform: Financial Products Discussion Draft" -- 54 percent of respondents said they felt the proposals in the draft, which call for simplifying and making more uniform the rules of derivatives and making changes to the taxation of debt instruments, have a fair chance of being adopted into law. Only 5 percent felt they had an excellent chance and 13 percent said there was no chance they would be adopted. Twenty-eight percent were not sure.

Other findings on financial products tax reform revealed the following:

• When asked what they felt would be the biggest challenges that the "Discussion Draft" could face, 34 percent said lobbying efforts from Wall Street and 31 percent said congressional focus on the looming debt ceiling and spending cuts.
• More than half of respondents (56 percent) are in favor of the proposals in the discussion draft from Congressman Camp, who heads the Ways and Means Committee of the U.S. House of Representatives. Thirteen percent are not in favor and 31 percent are not sure.
• Respondents were split on whether they felt the proposal was too bold a step for revising the tax rules governing derivatives. Thirty-two percent said the proposal was too bold, 34 percent said it wasn't and 34 percent said they weren't sure.

"Congressman Camp's interesting proposal, which responds to the realities of the modern financial markets, is a signal that many items could be on the table when it comes to comprehensive tax reform," Gutman added.

The survey reflects the responses of members of the Tax Governance Institute -- including board and audit committee members, chief financial officers and tax directors -- who participated in the Feb. 1, 2013 webcast. A replay of the video webcast is available here.

Part of the KPMG Institute Network (www.kpmginstitutes.com), the Tax Governance Institute (www.taxgovernanceinstitute.com) provides opportunities for board members, corporate management, stakeholders, government representatives and others to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk.

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International").  KPMG International's member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

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SOURCE KPMG LLP

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