Approximately 70% of the 578 chief financial officers and other business executives who answered PwC's Road to Election 2020 Pulse Survey predicted higher tax rates in the coming years.
The timing of any upcoming tax increases is uncertain and will depend on several factors, including Congress' political makeup and the state of the U.S. economy, said Rohit Kumar, co-leader of PwC's national tax office and a former deputy chief of staff to Senate Majority Leader Mitch McConnell, R-Ky.
The first order of business for Democrats if they control Washington next year will be a deficit-financed stimulus bill providing more pandemic relief, Kumar predicted, noting that a closely divided Senate would likely rely on a time-consuming budget reconciliation process in order to pass legislation. Tax increase legislation might not cue up in Congress until the latter part of 2021 or even further down the road, he said.
"I think it'll depend both on who controls Congress, but also, frankly, the state of the economy and to what degree there's a judgment, both economic and political, that the system can tolerate revenue increases to pay for additional spending programs," he said.
Businesses aren't likely to make up the lost revenue from paying higher taxes by raising prices on low-income Americans who have a very limited ability to bear financial strain during the pandemic, said Tim Ryan, PwC's U.S. chairman and senior partner.
In this hypercompetitive U.S. business environment, companies are attempting to lower the costs of products and services to make them affordable while looking to drive growth by boosting productivity, Ryan said.
Those transformation and productivity efforts that PwC's clients are undertaking will decide who wins, Ryan said.
Businesses have already started modeling scenarios that include higher tax rates, which are more likely than another round of tax cuts following 2017's historic federal tax overhaul , Kumar said.
The survey shows that corporations with limited investment dollars are starting to think through whether the November elections will lead to future tax increases or a continuation of trade tensions, Kumar said. If tax law changes aren't likely, then investment dollars that could have been put in tax planning or other tax activities can be redirected into supply chain-oriented activity, he said.
Even before the pandemic, businesses were planning for a rise in tax controversy, Ryan said, citing Organization for Economic Cooperation and Development efforts to determine if corporations are paying their fair share of taxes. He said tax controversy takes place in many shapes and forms, such as facing a challenge on a return.
If Congress doesn't change the tax law to offset the cost of pandemic relief, the federal government could attempt to make up lost revenue by becoming "more aggressive in [the] enforcement of existing law," Kumar said.
--Editing by Neil Cohen.
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