Almost half of senior executives polled said they did not expect an agreement on the so-called “fiscal cliff” negotiations by year-end, according to a survey of more than 2,500 business leaders conducted by KPMG’s Tax Governance Institute (TGI) earlier this month. 

In the survey, 48 percent of respondents said they did not expect an agreement on the “fiscal cliff” by Dec. 31, while 32 percent said that they thought there would be resolution by the year-end. Some 19 percent were not sure.
At the same time, a vast majority of respondents (77 percent) are also on the lookout for a temporary “stop gap” measure on the looming issue which -- if left unresolved -- would result in a combination of tax increases and forced spending cuts on Jan. 1.  

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: “It’s clear from our survey findings that the business community doesn’t think the government will be able to resolve the ‘fiscal cliff’ by Dec. 31.  Prudent companies are taking steps now to assess the potential implications.”

In any agreement, 55 percent of respondents said they would like to see a combination of government spending cuts and tax rate increases on higher-income individuals, while 32 percent said they would most like to see cuts in government spending, including entitlement programs.
 
Some 54 percent of respondents expect any agreement to include the extension of the 2001/2003 tax rates for those with income below $250,000, but not for taxpayers with income of $250,000 and above; 22 percent said there would be agreement on a plan that would temporarily extend all current tax rules.
 
In addition, the survey revealed that 33 percent said they do not expect enactment of any business tax reforms until beyond 2015; some 26 percent said they expect reform in 2014. Only 11 percent said they expect business tax reform in 2013. 

If the corporate tax rate is reduced, most respondents (38 percent) predicted that the new rate would be 28-29 percent, while a quarter of respondents (26 percent) said they see the rate falling to 30-31 percent. Eighteen percent said the rate would go to 25-27 percent.

“Lowering the corporate tax rate from its current 35 percent to 25 percent in a revenue-neutral manner will not be easy,” Gutman said.  “The cost of reducing the rate is going to have to be offset in some way, and that offset is likely going to come out of the business community,” Gutman said.

In other survey findings, all focused on U.S. economic recovery:

• Some 40 percent of respondents believe the “fiscal cliff” has been a significant issue over the past 12 months with regard to economic recovery in the United States.

• Forty-nine percent feel hiring by U.S. businesses will be the most important driver of any economic recovery over the next 12 months.

• 45 percent feel increased certainty on U.S. taxation for individuals and businesses will have the most significant affect on economic recovery in 2013.