Prepare your business for corporate tax policy changes post-election
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As the 2024 presidential election looms, the corporate world is on the edge of its seat, anticipating the significant implications for tax policy that hang in the balance. The stark contrast between the Republican and Democratic visions for corporate taxation promises to reshape the business landscape.
We will explore the key tax policy issues at stake, including the potential shift in corporate tax rates, bonus depreciation provisions, and the treatment of research and development (R&D) expenses. By providing insights into these possible outcomes, we aim to equip corporate tax professionals and large businesses for significant changes that may lie ahead.
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Future predictions for corporate tax rate changes
The Republican Party has long advocated for lower corporate tax rates to stimulate economic growth and attract investment. One of the key proposals from the Republican side is to reduce the corporate tax rate to 15%. This move could make the United States more competitive globally, as many other countries have lower corporate tax rates. Proponents argue that a lower tax rate would encourage businesses to invest more in the U.S., leading to job creation and economic expansion. Additionally, a lower tax rate could potentially reduce the incentive for companies to engage in tax inversion strategies, where they relocate their headquarters to countries with lower tax rates.
On the other hand, Democrats are proposing an increase in the corporate tax rate, potentially to 28%. This increase could generate additional revenue to fund various social programs and infrastructure projects. Democrats argue that the current corporate tax rate is too low and that corporations should contribute more to the public good. They also point out that many large corporations pay little to no federal income tax due to various loopholes and deductions. An increase in the corporate tax rate would help address income inequality and ensure that corporations pay their fair share of taxes.
Bonus depreciation provision extension possibilities
The 100% bonus depreciation provision, which allows businesses to immediately deduct the full cost of qualifying assets, has been a cornerstone of Republican tax policy. Republicans are likely to push for an extension of this provision (rather than allowing it to continue phasing down), arguing that it encourages businesses to invest in new equipment and technology. By allowing businesses to write off the full cost of these investments in the year they are made, the bonus depreciation provision can significantly lower the after-tax cost of capital, making it more attractive for businesses to invest. This, in turn, can lead to increased productivity and economic growth.
Democrats have a more nuanced view on the 100% bonus depreciation provision. While they recognize the potential benefits of encouraging business investment, they are also concerned about the long-term fiscal impact of such a generous tax break. Democrats may advocate for a more targeted approach, where the bonus depreciation provision is extended but with certain limitations or conditions. For example, they might propose that the provision be phased out over time or that it be limited to certain types of investments, such as those that promote green energy or other socially beneficial outcomes.
Outlook on the deductibility of research & development expenses
The deductibility of R&D expenses is another area where Republicans and Democrats may differ, but both parties generally support full deductibility of these expenses. Although the Tax Cuts and Jobs Act of 2017 required capitalization and amortization of R&D expenses, Republicans are likely to push for the reinstatement of 100% deductibility to encourage innovation and technological advancement. They believe that allowing businesses to deduct the full cost of their R&D investments in the year they are made can spur innovation and help the U.S. maintain its competitive edge in the global economy.
Democrats also recognize the importance of R&D for economic growth and innovation and generally support full deductibility of R&D expenses. However, they may take a more targeted approach by proposing that deductibility be limited to certain types of R&D, such as those that address pressing social or environmental challenges. They might also advocate for increased funding for public R&D, arguing that government investment in basic research can complement private sector efforts and lead to breakthrough innovations. Additionally, Democrats may push for greater transparency and accountability in how R&D tax incentives are used, to ensure that they benefit the broader economy and not just a few large corporations.
Be prepared to adapt to corporate tax policy changes
The outcome of the 2024 presidential election will have significant implications for corporate tax policy. This is why corporate tax professionals and large businesses should closely monitor the upcoming election results and be prepared to adapt to potential changes in tax policy.
Regardless of the outcome, it is clear that the next administration will face important decisions about how to balance the need for economic growth with the need for fiscal responsibility and social equity. By staying informed and engaged, corporate tax professionals can help ensure that tax policy supports a strong and vibrant economy.
Dive into our captivating webinar, “Strategic Tax Planning in a Changing Political Landscape,” and discover what KPMG and Thomson Reuters tax experts reveal about potential post-election changes.
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