Survey Reveals Common Tax Reform Goals for Businesses of All Sizes:Uniformity of Views Could Buttress Legislative Prospects

BY DAVID J. KAUTTER

R egardless of size, businesses appear to share com-mon priorities for reforming the tax code in waysthat will spur growth, according to a recent survey

targeted to advisers who are Bloomberg BNA readers.Although the survey revealed some notable differ-

ences between advisers to small businesses and thoseadvising mid- and large-size businesses, it underscoredmany areas of common ground.

All the advisers surveyed rated seven of 15 tax

reform proposals as virtually identical in

importance, including extension of 100 percent

expensing for equipment, lowering of income

tax rates for corporate and flowthrough income,

and reduction of employer payroll taxes.

All the advisers surveyed rated seven of 15 tax reformproposals as virtually identical in importance, includingextension of 100 percent expensing for equipment, low-

ering of income tax rates for corporate and flowthroughincome, and reduction of employer payroll taxes. Butwhile small business advisers ranked alternative mini-mum tax repeal and payroll tax reductions for employ-ers as most important, mid- and large-size advisers gavetop priority to 100 percent expensing.

The survey, conducted during the last week of No-vember and the first week of December 2011, wasjointly sponsored by Bloomberg BNA and the KogodTax Center at American University’s Kogod School ofBusiness. The survey was intended to gauge the level ofsupport, primarily among professional business advis-ers, of various proposals currently under discussion inWashington, D.C., and that could be included in a morecomprehensive tax reform package.

Gauge of 15 ProposalsKogod Tax Center, which is a research institute asso-

ciated with the masters of science in taxation (MST)program at American University, focuses primarily ontax and business issues affecting small businesses, en-trepreneurs, and middle-income taxpayers. Advisers tosmall businesses and entrepreneurs are very attuned tohow their clients would respond to the types of propos-als covered in the survey, so we were eager to see theirviews.

The survey asked readers to share their views aboutthe impact on growth of 15 proposals that would pro-vide an array of tax incentives to both businesses andindividuals: repealing the alternative minimum tax(AMT); reducing payroll taxes on employers; makingthe health care insurance deduction for self-employment tax permanent; lowering income tax ratesfor corporate and flowthrough business income; ex-tending 100 percent expensing; reducing payroll tax onemployees; issuing definitive rules on ‘‘independentcontractor’’ status; accelerating depreciation write-offs;lowering capital gains tax rates; eliminating estatetaxes; making 100 percent gain exclusion on dispositionof ‘‘qualified small business stock’’ permanent; increas-ing incentives for retirement plans; enacting a single,‘‘flat’’ income tax rate; replacing the worldwide foreignearnings taxation system with a territorial system; and

David Kautter is managing director of theKogod Tax Center at the Kogod Schoolof Business at American University in Wash-ington, D.C., and executive in residence in theschool’s Department of Accounting andTaxation. He joined the Tax Center after morethan 30 years at Ernst & Young LLP, mostrecently as director of national tax.

The Kogod Tax Center promotes independentresearch and expands knowledge with respectto tax policy, tax planning, and tax compli-ance for small and mid-size businesses, entre-preneurs, and middle-income taxpayers.

NUMBER 25 J-1 FEBRUARY 8, 2012

COPYRIGHT � 2012 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0092-6884

Daily Tax Report®

replacing the income tax with a national sales or otherconsumption tax.

Respondents were asked to rank these proposals ona scale of one to seven, with one being ‘‘not at all im-portant’’ and seven being ‘‘extremely important.’’

For purposes of the Bloomberg BNA/Kogod survey,‘‘small businesses’’ were defined as those with $10 mil-lion or less in gross receipts, a definition commonlyused in the Internal Revenue Code and elsewhere.

A notable finding of the survey was the remarkablesimilarity between the views of advisers to small busi-nesses and those to mid- and large-size businesseswhen it came rating the potential tax reform proposalsas ‘‘extremely important.’’

Of the 15 proposals surveyed, when you combine thetop rating of seven with the next-to-top rating of six, ad-visers to small as well as to mid- and large-size busi-nesses rated seven of the proposals as virtually identi-cal in importance. For each of these seven proposals,there was a differential of only 3 percentage points orless in the ratings of small and those of mid- and large-size advisers.

The seven proposals, listed in order of importance tosmall business advisers/mid- and large-business advis-ers, are:

s extending 100 percent expensing (39 percent /37percent);

s lowering of income tax rates for corporate andflowthrough income (39 percent /36 percent);

s reducing payroll taxes on employees (35 percent/32 percent);

s eliminating estate taxes (26 percent /28 percent);

s issuing definitive rules on independent contractorstatus (22 percent /23 percent);

s replacing the income tax with a national sales taxor other consumption tax (22 percent /23 percent); and

s enacting a single, flat income tax rate (18 percent/18 percent).

Top Priorities Differ, HoweverHowever, with respect to which proposals were

ranked as most important, there was a significant dif-ference of opinion between small business advisers andadvisers to mid- and large-size businesses.

While small business advisers ranked alternative

minimum tax repeal and payroll tax reductions for

employers as most important, mid- and large-size

advisers gave top priority to 100 percent

expensing.

Two proposals tied for first place in order of impor-tance for small businesses—repealing the AMT and re-ducing payroll taxes on employers. Small business sup-port for these two proposals outranked by more than2-to-1 the level of support of mid- and large-size busi-nesses. Making the health care insurance deduction for

Small and Mid/Large Size Businesses Agree on Most Important Tax Reform Proposals

Extending 100% expensing

MID/LARGESM A L L

37%39%

Lowering of income tax rates for corporate and

fl ow-through incomeM

ID/LA RGESM A L L

36%39%

Reducing payroll taxes on employees

MID/LA RGESM A L L

32%35%

Eliminating estate taxes

MID/LA RGESM A L L

28%26%

Issuing defi nitive rules on "independent contractor"

statusM

ID/LA RGESM A L L

23%22%

Replacing the income tax with a national sales tax or other

consumption taxM

ID/LARGESM A L L

23%22%

Enacting a single, fl at income tax rate

MID/LARGESM A L L

18%18%

This chart illustrates the seven most important tax reform proposals according to business advisors for small and mid/large business.

A BNA Graphic/dy2025g2

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2-8-12 COPYRIGHT � 2012 BY THE BUREAU OF NATIONAL AFFAIRS, INC. DTR ISSN 0092-6884

self-employment tax permanent was next in importancefor small businesses, according to the survey.

In addition to repealing the AMT being a No. 1 issuefor advisers to small businesses, it also tied for secondfor advisers to mid- and large-size businesses, makingit a high priority for businesses regardless of their size.

Extending 100 percent expensing for equipment pur-chases ranked as the most important issue for advisersto mid- and large-size businesses, although for smallbusiness advisers it ranked behind the self-employmentinsurance deduction, along with lowering of income tax

Tax Reform Proposals Ranked as Most Important

Repealing Alternative Minimum Tax

Reducing payroll taxes on employers

Making the deduction for health care insurance for self-employment tax permanent

Lowering of income tax rates for corporate and fl ow-through business income

Extending 100% expensing

Reducing payroll taxes on employees

Issuing defi nitive rules on "independent contractor" status

Accelerating depreciation

Lowering of capital gains tax rates

Eliminating estate taxes

Making 100% gain exclusion on disposition of “qualifi ed small business stock” permanent

Increasing incentives for retirement plans

Enacting a single “fl at” income tax rate

Replacing the worldwide foreign earnings taxation system with a territorial system

Replacing the income tax with national sales or other consumption tax

0% 10% 20% 30% 40% 50%

A BNA Graphic/dy2025g3

18%

14%

9%

18%

23%

14%

14%

14%

5%

14%

5%

18%

18%

18%

18%

35%

35%

30%

26%

26%

26%

22%

22%

17%

17%

17%

17%

9%

4%

0%

Small Business (10 million or less in gross receipts)

Mid-sized/Large Business

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DAILY TAX REPORT ISSN 0092-6884 BNA 2-8-12

rates for corporate and flowthrough business incomeand reducing payroll tax on employees.

Also important to mid- and large-size businesses areproposals that would implement major restructuring orreplacement of the current tax code with new ways totax business income. Other items ranked in a tie for sec-ond for mid- and large-size businesses were enacting asingle ‘‘flat’’ income tax rate, replacing the worldwideforeign earnings taxation system with a territorial sys-tem, and replacing the income tax with a national salesor other consumption tax.

This is not surprising, in that large businesses have amuch bigger stake in proposals tied to their ability tocompete in a global marketplace, thus their interest innational sales and consumption taxes and reform of theU.S. system that taxes their worldwide income.

On the other hand, small and mid-size businesses areoften focused on cash flow, both their own and theircustomers’, since revenue for these businesses isclosely tied to disposable income.

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2-8-12 COPYRIGHT � 2012 BY THE BUREAU OF NATIONAL AFFAIRS, INC. DTR ISSN 0092-6884