TTC/EY Tax Policy Business Barometer - Views on federal tax policy June 2019
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TTC/EY Tax Policy Business Barometer Views on federal tax policy June 2019
The Tax Council (TTC) and Ernst & Young LLP introduced the Tax Reform Business Barometer in 2013 to measure the
business community’s perceptions on the prospects for federal business tax reform and other key policy issues. The
Barometer has since evolved to encompass tax policy issues beyond tax reform, including trade, infrastructure and the
US fiscal forecast.
This 18th Barometer tracks views reported from May 2 through May 10, 2019 by 96 leading US tax executives and
practitioners. Results are based on an online survey conducted by EY’s Quantitative Economics and Statistics (QUEST)
practice.
Key results
Tax extenders
• Respondents are split on whether Congress will extend expired and expiring tax provisions this year: On average,
respondents believe there is a 44% likelihood Congress will act in 2019 to extend these “tax extenders.”
Tax Cuts and Jobs Act (TCJA) implementation
• Technical corrections to the TCJA are unlikely before year end: On average, respondents believe there is a 25%
likelihood that a technical corrections bill will be enacted before the end of 2019.
• TCJA’s temporary provisions will be extended - eventually: On average, respondents believe there is a 76% likelihood
that the major temporary TCJA provisions will be extended at some point.
• Individual income tax provisions are the most likely to be extended: Of those who believe major TCJA provisions
will be extended, nearly three-quarters (71%) believe that individual tax rates will be extended. Sixty-nine percent
believe the 20% deduction for pass-through income will be extended.
• The more stringent earnings-before-income-tax (EBIT)-based interest limitation is likely to take effect as
scheduled in 2022: Eighty percent of respondents believe it is at least somewhat likely the EBIT-based interest
limitation will go into effect in 2022.
Impact of international tax changes
• TCJA’s global intangible low-taxed income (GILTI) provision has had the most impact on companies and industries:
Eighty-eight percent of respondents believe the GILTI provision has had the most impact of all international tax-
related provisions in the TCJA, followed by the Section 163(j) interest expense deduction limitation (63%), and the
TCJA’s base erosion and anti-abuse tax (BEAT) (56%).
• Businesses are following “BEPS 2.0” closely: Of those respondents who are affected by the efforts of the
Organisation for Economic Co-operation and Development (OECD) to address the challenges of digital taxation, the
vast majority (78%) are following the changes closely or very closely.
Tariffs and trade policy
• A trade war is likely to cause a recession: Sixty-two percent of respondents believe that a trade war is at least
somewhat likely to push the US economy into a recession, similar to the results from the September 2018 (62%) and
January 2019 (68%) Barometers.
• Trade frictions are likely to continue this year and beyond: Many respondents (42%) believe that the current trade
frictions and increased tariffs between the United States and its major trading partners will not begin to de-escalate
until 2021.
• Respondents believe the Administration’s approach to China will be successful: Sixty-five percent of respondents
think that it is at least somewhat likely that the Administration’s approach to trade policy and tariffs will succeed in
getting China to reform its trade practices relating to intellectual property and forced technology transfers. The
remaining 35% of respondents think the current approach is not very likely or not likely at all to succeed.
• Modeling tariffs is important for some: Fifty-six percent of respondents report doing some or extensive modeling on
the impact of tariffs on their company, industry, or market, while the remainder report doing no modeling on the
issue.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 1Infrastructure
• Deteriorating infrastructure is a problem for businesses: Eighty-five percent of respondents believe deteriorating
infrastructure poses a problem for their business or industry.
• Respondents think increasing the gasoline tax is a good way to pay for infrastructure improvements: When asked
to pick top funding choices, respondents overwhelmingly preferred a gasoline tax (82%) to other sources of federal
funding for infrastructure projects, followed by a carbon tax (56%), and government borrowing (38%).
Federal government’s long-term fiscal outlook
• Respondents generally don’t think the federal government will address its long-term fiscal imbalance anytime
soon: Respondents believe, on average, that there is a 58% likelihood that Congress will not enact any legislation
within the next five years to address the federal government’s long-term fiscal imbalance.
• Increasing corporate income taxes is the most likely approach Congress will take to reduce the deficit: Seventy-
three percent of respondents think Congress is likely to increase corporate income taxes to reduce the federal
government’s long-term fiscal imbalance.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 2Respondents split on the fate of tax extenders
There are roughly two dozen tax provisions that expired at the end of 2017 – the so-called “tax extenders.” In the past,
Congress routinely extended these expired provisions every couple of years, sometimes retroactively. When asked about
the likelihood that Congress will act in 2019 to reinstate most or all of these provisions retroactive to the start of 2018,
respondents were split. Half believe there is at least a 50% chance Congress will act in 2019. On average, respondents
believe there is a 44% likelihood Congress will act in 2019 to extend the tax extenders.
Moving forward under the TCJA
The May 2019 Barometer asked several questions on the likelihood of enactment of technical corrections legislation and
legislation to make various sunsetting provisions permanent, as well as the likelihood of future revenue-raising provisions
going fully into force.
Congress seen as increasingly unlikely to enact TCJA technical corrections
On average, respondents believe there is only a 25% likelihood that Congress will enact technical corrections legislation
before the end of 2019. Half of respondents believe the likelihood of enactment is 20% or less.
Average likelihood Congress will enact TCJA technical corrections legislation before year end
31% 34%
25%
August 2018 December 2018 May 2019
Outlook for Congress extending sunsetting TCJA provisions
The TCJA contains a number of provisions that are scheduled to sunset or be phased out by the end of 2025. These
include the reduced individual tax rates, the 20% qualified pass-through income deduction, 100% bonus depreciation and
changes to the individual tax base. In general, respondents believe Congress will eventually extend these provisions, but
not within the next several years:
• Respondents believe, on average, that there is a 76% likelihood Congress will extend the major expiring provisions of
the TCJA. However, on average, respondents believe there is a 34% likelihood that major expiring provisions of the
TCJA will not be made permanent until 2023 or later. Respondents gave a 24% likelihood that the major TCJA
provisions would not be extended at all.
• Respondents gave, on average, a 3% likelihood that Congress would pass legislation to make these provisions
permanent in 2019, a 6% likelihood of enactment in 2020, a 17% likelihood of enactment in 2021 and a 17% likelihood
of enactment in 2022.
When do business tax professionals think Congress will extend TCJA’s sunsetting provisions?
Expected year of TCJA extension
After the next TCJA not
2018 2019 2020 2021 2022 four years* extended
May 2019 Barometer — 3% 6% 17% 17% 34% 24%
December 2018 Barometer — 6% 11% 13% 14% 27% 29%
August 2018 Barometer 8% 14% 11% 11% — 28% 27%
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 3*Answer option is phrased as the fifth year from the current year “…or beyond.” For example, the August 2018 Barometer answer
choice was “2022 or beyond,” while the December 2018 and May 2019 Barometers gave the option as “2023 or beyond.”
Percentages reflect average likelihood.
Note: Percentages may not sum to 100% due to rounding.
Of the respondents who believe Congress will extend major provisions of the TCJA, a strong majority believe that
individual rate cuts are likely to be made permanent (71%). More than half of respondents believe that the deduction for
certain pass-through income (69%), 100% bonus depreciation (59%), and changes to the individual tax base (54%) are
likely to be made permanent.
Which provisions do business tax professionals deem most likely to be made permanent?
71%
Individual rates 76%
82%
Deduction for certain pass-through 69%
58%
income
58%
59%
100% bonus depreciation 53%
49%
54%
Changes to individual tax base 46%
50%
12% May 2019
Other 8% December 2018
10%
August 2018
Will the EBIT-based interest expense limitation and amortization of certain research
and experimentation (R&E) expenditures go fully into force as scheduled (beginning
of 2022)?
Two major revenue-raising provisions of the TCJA, the EBIT-based interest expense limitation and the amortization of
certain R&E expenditures, are not scheduled to go fully into force until the beginning of 2022. According to estimates
from the Joint Committee on Taxation (JCT), these provisions are expected to raise $188.1 billion and $119.7 billion,
respectively, between 2022 and 2027.1
Most respondents (80%) believe that it is at least somewhat likely the EBIT-based interest expense limitation will go fully
into force in 2022. Five percent believe it is extremely likely, 31% believe it is very likely and 44% believe it is somewhat
likely that this provision will go fully into force as scheduled. Only 17% believe it is not very likely, and 3% believe it is not
likely at all to go fully into force as scheduled.
1
Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R.1, The “Tax Cuts and Jobs Act,
December 18, 2017.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 4Likelihood that EBIT-based interest expense limitation will go fully into force at the beginning of 2022
May 2019
44%
37% December 2018
31% 32%
17% 18%
11%
5% 3% 2%
Extremely likely Very likely Somewhat likely Not very likely Not likely at all
Note: Percentages may not sum to 100% due to rounding.
Sixty-eight percent of respondents think it is at least somewhat likely that the TCJA provision requiring amortization of
certain R&E expenditures will go into effect as scheduled at the beginning of 2022. Only 6% believe it is extremely likely
the provision will go fully into force, while 24% and 38 % believe it is very or somewhat likely, respectively. One quarter
(25%) believe it is not very likely that the provision will go fully into force, and 7% believe it is not likely at all.
Likelihood that amortization of certain R&E expenditures goes fully into force at the beginning of 2022
38% May 2019
31% 33% December 2018
29%
24% 25%
6% 6% 7%
1%
Extremely likely Very likely Somewhat likely Not very likely Not likely at all
Note: Percentages may not sum to 100% due to rounding.
Impact of international tax changes
The TCJA included a number of international tax provisions that expand and change the tax base. This Barometer
included a question on these international tax provisions, as well as a question related to the OECD’s efforts focused on
taxation of the digital economy.
GILTI has the greatest impact of TCJA’s international tax elements
Of the 65% of respondents affected by the TCJA’s international provisions, nearly half (47%) believe that GILTI has had
the greatest impact on their company or industry.
• Eighty-eight percent say the TCJA’s GILTI provision ranks among the top three with the greatest impact on their
company or industry.
• The Section 163(j) interest expense deduction limitation ranked next after the GILTI provision, with 63% of
respondents ranking it as one of their top three significant provisions – 20% said it had the greatest impact on their
company or industry.
• BEAT and the deduction for foreign-derived intangible income (FDII) are also considered significant, with 56% and
49% of affected respondents, respectively, reporting the provisions as one of the top three aspects of TCJA affecting
their businesses the most.
• Twenty-nine percent of respondents reported other aspects as having the top impact on their company and industry.
Among the other responses were: changes to foreign branch conversions, book conformity, the transition tax, and
foreign tax credit (FTC) changes.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 5TCJA international tax provisions having the greatest impact on respondents’ companies and industries
Global intangible low-taxed income (GILTI) 47% 24% 17% 88%
Changes to Section 163(j) related to limiting the
20% 25% 17% 63%
deduction for interest expenses
BEAT 15% 19% 22% 56%
Foreign-derived intangible income (FDII) 15% 17% 17% 49% Ranking
1
Other 2% 10% 17% 29%
2
3
Note: Percentages may not sum to 100% due to rounding.
Most organizations are following new OECD digital taxation efforts
The OECD is following up on its Base Erosion and Profit Shifting (BEPS) project to focus on addressing the tax challenges
presented by the digitalization of the economy, sometimes referred to as “BEPS 2.0.” Some of the proposals being
considered may have implications for many, if not all, traditional businesses with cross-border operations.
Of those respondents who reported that taxation of the digital economy applies to them (88%), 51% said they are
following the OECD’s recent efforts closely, while 27% are following very closely. Twenty-two percent of respondents are
not following these new efforts at all.
How closely respondents are following the OECD’s efforts on taxing the digital economy
51%
27%
22%
Very closely Closely Not at all
Views on tariffs and escalating trade tensions
In January 2018, the Administration announced the implementation of a first round of tariffs on solar panels imported
from China. In March, the Administration imposed broadly applicable steel and aluminum tariffs. In April, China retaliated
with its own tariffs, sparking fears of a trade war. The trade war was “put on hold” in May, only to be revived again
almost immediately. Recent developments include additional proposed and enacted tariffs on Chinese imports, the
possibility of new tariffs on imports of automobiles and automobile parts into the United States, retaliation by major US
trading partners, and a new trade deal potentially replacing NAFTA. (For updates on the US trade situation, sign up to
receive EY’s Tax Alerts, including the “QUEST Trade Policy Brief” and “This Week in Trade.”)
Shortly after the May 2019 Barometer was fielded, the Administration announced an increase in tariffs on Chinese
goods. China responded by announcing tariffs of their own on US imports. The following results do not factor in these
developments.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 6Sixty-two percent of respondents believe that it is at least somewhat likely that a trade war will eventually push the US
economy into a recession, compared to 68% who reported this belief in the December 2018 Barometer and 62% who
reported it in the September 2018 Barometer. Only 38% believe it is not very likely or not likely at all.
Likelihood a trade war pushes the US economy into a recession
May 2019
December 2018 43% 43%
37% 36% 35%
August 2018
27%
18% 16%
13%
6% 7% 9%
6% 3%
2%
Extremely likely Very likely Somewhat likely Not very likely Not likely at all
Note: Percentages may not sum to 100% due to rounding.
A majority of respondents (61%) believe that current trade frictions and rising tariffs between the United States and its
major trading partners will not begin to de-escalate until 2021 or later. While 30% of respondents in the December 2018
Barometer believed trade frictions would begin to de-escalate in 2019, that share has dropped to just 14%.
When trade frictions are expected to begin to de-escalate
May 2019
42% 43%
December 2018
30%
25%
17% 18%
14%
8%
2% 2%
2019 2020 2021 2022 2023 or beyond
Note: Percentages may not sum to 100% due to rounding.
Sixty-five percent of respondents think it is at least somewhat likely that the Administration’s approach to trade policy
and tariffs will get China to reform its trade practices relating to intellectual property and forced technology transfers.
However, only 9% and 0%, respectively, believe the Administration’s approach is very likely or extremely likely to
succeed. Thirty-five percent view the current approach as either not very likely or not likely at all to succeed.
Likelihood Trump administration’s approach will succeed in getting China to reform its trade practices
55% May 2019
48%
December 2018
29%
24%
9% 12% 11% 8%
0% 2%
Extremely likely Very likely Somewhat likely Not very likely Not likely at all
Note: Percentages may not sum to 100% due to rounding.
Fifty-six percent of respondents reported having done no modeling of the impact of tariffs, while 44% reported doing
some or extensive modeling of the impact of tariffs on their organization, industry or markets.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 7Prevalence of tariff impact modeling
May 2019
December 2018 63%
56% 55%
August 2018
31% 29%
25%
13% 13% 16%
Extensive modeling Some modeling No modeling
Note: Percentages may not sum to 100% due to rounding.
Addressing infrastructure needs and potential funding sources
In February 2018, shortly after Congress enacted the TCJA, the Administration released an infrastructure plan
estimated to cost $1.5 trillion, funded by a mix of public and private resources. Since then, although the Administration
has met with some members of Congress on the issue, there has been little update on plans to improve infrastructure.
Responses to the May 2019 Barometer show that infrastructure and its funding remain a concern for most business tax
professionals, companies and industries.
Deteriorating national infrastructure poses a problem for most respondents
Eighty-five percent of respondents report that deteriorating infrastructure poses at least some problem for their
business or industry, with most (39%) believing it represents a moderate problem. Twenty percent believe the nation’s
deteriorating infrastructure presents a large problem and 27% say it presents a small problem. Only 15% report that
deteriorating infrastructure is not a problem at all for their business or industry.
Magnitude of deteriorating infrastructure concerns for business or industry
39%
27%
20%
15%
August 2018 December 2018 May 2019
Large problem Moderate problem Small problem Not a problem
Note: Percentages may not sum to 100% due to rounding.
A higher gas tax remains the preferred infrastructure financing option
As in past Barometers, respondents overwhelmingly prefer funding US government spending on infrastructure with an
increase in the gasoline tax. Eighty-two percent of respondents rank the gasoline tax as a top-three choice and 49% rank
it as their top choice. A carbon tax is the second most popular choice, with 56% of respondents ranking it as one of their
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 8top three choices, followed by government borrowing (38%), an add-on value-added tax (VAT) (32%), other options
(31%), a corporate tax increase (26%), and an individual income tax increase (19%). A wealth tax is the least preferred
approach, with only 9% ranking it as one of their top three preferred approaches.
A vehicle-miles-traveled (VMT) tax, which is currently being tested in Oregon and applied to trucks in Illinois, was the
most popular response cited by respondents who ranked “other methods” in their top three preferred approaches. Other
options respondents suggested included public-private partnerships, infrastructure-focused taxes or fees, and roadway
tolls.
Top three preferred approaches to financing government spending on infrastructure
Gasoline tax increase 49% 22% 11% 82%
Carbon tax 10% 28% 18% 56%
Increase government debt (i.e., government
8% 13% 17% 38%
borrowing)
Add-on VAT 8% 14% 10% 32%
Other 9% 5% 17% 31%
Corporate tax increase 8% 10% 7% 26% Ranking
Individual income tax increase 4%3% 11% 19%
1
2
Wealth tax 1%4% 4% 9% 3
Federal government’s fiscal outlook
With the TCJA projected to decrease revenue and federal spending projected to increase, the federal deficit and debt
are growing rapidly, with the deficit projected to exceed $1 trillion by 2020.2 This May 2019 Barometer probed views
regarding possible approaches to addressing the federal government’s long-term fiscal imbalance.
Legislation addressing federal government’s fiscal imbalance is not expected in the
next five years
Respondents continue to believe that major legislation to address the federal government’s long-term fiscal imbalance
will not be enacted anytime soon. On average, respondents believe there is a 58% likelihood that no legislation addressing
the fiscal imbalance will be passed in the next five years. Very few respondents believe there is a significant possibility
of enactment in 2019 or 2020. Respondents suggest that the likelihood might increase slightly in 2021, 2022, and
2023, the potential first three years of a new administration.
2 Congressional Budget Office, The 2018 Long-Term Budget Outlook, June 26, 2018.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 9When business tax professionals expect possible legislation to address the government’s long-term fiscal imbalance
Not in the
2018 2019 2020 2021 2022 2023 next 5 years*
May 2019 Barometer — 1% 3% 13% 11% 14% 58%
December 2018 Barometer — 4% 7% 12% 12% 11% 54%
August 2018 Barometer 8% 6% 8% 15% 11% — 58%
*Actual response option is phrased “No significant legislation in the next five years.”
Note: Percentages may not sum to 100% due to rounding.
Tax increases are now seen as the most likely approach to reducing fiscal imbalance
When asked about the likely approaches to significantly reducing the long-term fiscal imbalance, respondents over the
past three Barometers have increasingly pointed to an increase in the corporate income tax rate as the likely legislative
solution. Forty-six percent of respondents ranked increasing the corporate income tax rate as the most likely approach.
Eighteen percent of respondents ranked increasing the individual income tax as the top approach. Only 23% and 19% of
respondents, respectively, included adopting a wealth tax or a VAT among the three top choices.
Top three most likely approaches to reducing the long-term fiscal imbalance
Corporate income tax increase 46% 18% 9% 73%
Individual income tax increase 18% 25% 18% 60%
Reduced discretionary spending 9% 20% 20% 49%
Reduced mandatory spending 4% 15% 20% 39%
Carbon tax 6% 13% 16% 34%
Wealth tax 5% 7% 10% 23% Ranking
Adopt a VAT 11% 3%4% 19%
1
2
Other 3% 3% 3
Respondents suggest that reducing spending is an increasingly unlikely approach since we first asked about sources of
long-term fiscal imbalance in our August 2018 Barometer. Tax increases, both corporate and individual income taxes, are
now seen as the two most likely approaches to reducing the federal government’s long-term fiscal imbalance.
Top three most likely approaches to reducing the long-term fiscal imbalance
Top 3 most likely approaches to reduce federal long-term fiscal imbalance
Corporate Individual Reduce Reduce
tax income tax discretionary mandatory Carbon Wealth Adopt a
increase increase spending spending tax tax VAT Other
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 10May 2019 Barometer 73% 60% 49% 39% 34% 23% 19% 3%
December 2018 62% 41% 22% 24% 11%
77% 60% —
Barometer
August 2018 64% 58% 28% 36% 11%
58% 44% —
Barometer
Note: Percentages may not sum to 100% due to rounding.
Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 11About The Tax Council and Ernst & Young LLP The Tax Council is a Washington, D.C.-based non-profit, membership organization promoting sound tax and fiscal policies since 1966. Its membership comprises (but is not limited to) Fortune 500 companies, leading accounting and law firms, and major trade associations. The global Ernst & Young Global Limited organization, of which Ernst & Young LLP is a member, is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Confidential — All Rights Reserved TTC/EY Tax Policy Business Barometer | 12
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2019 Ernst & Young LLP. All Rights Reserved. SCORE no. 05428-191US BSC no. 1901-3014654 ED None This material is provided solely for educational purposes; it does not take into account any specific individual or entity’s facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting, or legal advice. Ernst & Young LLP expressly disclaims any liability in connection with the use of this presentation or its contents by any third party. The views expressed by the Respondents are not necessarily those of Ernst & Young LLP or other associated company or organization. ey.com
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