Extending all of the TCJA individual provisions at every income level has an estimated cost of $3.5 trillion over the next 10 years, according to the Congressional Budget Office. There’s strong bipartisan support for extending most of the TCJA individual provisions, but even President Joe Biden’s proposal to maintain TCJA individual tax provisions for those with incomes below $400,000 would have a high cost of between $2 trillion to $2.25 trillion. The business extenders cost less — approximately $1 trillion. If policymakers decide not to preserve these provisions, however, that decision could negatively affect growth by increasing the cost of business investment and job creation.
As debt concerns mount, the fiscal cliff becomes steeper, leaving Congress to look elsewhere for revenue. Executives have expressed concern that the corporate tax rate may be among the first things that decision-makers consider. TCJA lowered the corporate tax rate to 21%, a move with no end date, but deficit concerns and political pressures could change that. Congress also could change other business tax rules in ways that would increase taxes paid by corporations even if the 21% rate remains in place.
Even without US tax increases, multinational companies should be prepared to pay a higher overall tax rate under the new global minimum tax regime created by Pillar Two. Many aspects of the OECD’s global framework became effective on January 1, 2024, but key aspects of the rules remain subject to ongoing discussions, such that taxpayers may still be figuring out how to comply with Pillar Two rules long term.
A chance to join the debate
Much has changed since 2017, including the faces of those who were on Capitol Hill at the time. For example, only four of the 24 House Ways and Means Republicans who helped write the 2017 Act remain on the committee. You can’t assume that today’s Congress is familiar with what happened then and what’s important to your organization today.
No one can be certain which party will control the House and Senate in 2025, but most of the current members of Congress are likely to return next year. Yet, according to PwC’s August 2023 Pulse Survey Survey, only 27% of tax leaders say they’re actively engaging with lawmakers on US or global tax policy.
Building a coalition among the C-suite and board is the first step to crafting a story focused on what their corporate tax policies could mean for Main Street.
Educate internal stakeholders
It’s just as important for internal stakeholders to understand the possible implications. The CFO, board and audit committee will want to know the impact of these proposals. Consider the following:
- Collaborate with the financial planning and analysis team on long- and short-range modeling to determine scenarios and contingencies.
- Work with finance, government affairs and communications teams to craft messaging for the C-suite and the board.
- Identify business operation leaders in your organization who can speak to their local members of Congress and staff on the potential effect of tax policy decisions.
Align your message to policymakers’ priorities
Companies rank the current 21% federal corporate tax, the FDII incentive to manufacture and invest in intellectual property in the United States and other TCJA reforms as top priorities. Decision-makers, however, will be less concerned with how you manage your effective tax rate. As you prepare to take your message to legislators, regulators, policymakers and the media, consider the following:
- Your company’s key policy priorities through the lens of employment, investments and growth
- The suppliers — small- and medium-sized businesses — in your ecosystem, who should also care about these issues
- Trade associations, industry groups or other coalitions with whom you can align
- Lining up advisors who can provide strategic counsel on this debate
With the individual provisions carrying the biggest price tag, U.S. House Ways and Means Committee Chairman Jason Smith (R-Mo.) has said everything is on the table. The corporate rate may affect your company’s bottom line, but Congress will be more concerned about whether their decisions will lead companies to close US plants or lay off US workers.
The current combined US corporate tax rate (federal plus the average state corporate rate) is 25.8%. Before TCJA, the combined corporate rate was 38.9% in the US, the highest rate among OECD countries. But a 25.8% combined US corporate tax rate is still more than two points higher than the average combined corporate rate of other OECD countries. Increasing that rate differential even more could have a negative impact on US companies’ ability to compete.