Fast-growth CEOs in US favour flat tax
CEOs of the fastest-growing private companies in the US, dissatisfied with the present federal tax system, strongly prefer a flat tax. They also believe that federal tax reform — involving conversion to a flat tax —would have a positive impact on business and the economy.
This past January, the president created a bipartisan advisory committee on income tax reform, and he recently imposed a September deadline for recommendations. Ideas under consideration are said to include adoption of a flat tax for personal and business returns, a value-added consumption tax, modification or elimination of the alternative minimum tax, and making the president’s recent tax cuts permanent—including repeal of the estate tax beyond the year 2010. PricewaterhouseCoopers’ Trendsetter Barometer asked 341 owners of fast-growing privately held businesses for their views on these options.
Flat tax a clear preference
Assuming their tax bill would remain roughly the same:
- For their own personal tax return, 58% prefer a flat tax that would lower tax rates while eliminating tax breaks; 16% favour substituting a value-added consumption tax; and only 16% endorse the current system. Those personally preferring a flat tax are evenly split, with half supporting inclusion of progressive features that might grant a lower rate for lower-wage earners—and protection for charitable contributions and house-buying incentives—while another half favours no progressive features.
- For businesses like their own, 48% prefer a flat tax that would simplify the federal tax structure; only 16% support the current system; and 13% favour changing to a value-added tax.
“These business owners are suggesting that when personal and business income is taxed, all sources should be included at a single rate, and with limited or no deductions,” says Marty Janowiecki, tax partner, PricewaterhouseCoopers Private Company Services. “But, while such an approach has great appeal, simplifying the tax code would nevertheless involve difficult choices about a number of popular tax breaks.”
Alternative minimum tax
Two-thirds of “Trendsetter” CEOs favour repeal or modification of the alternative minimum tax, a parallel tax system that sets a maximum of 28% federal tax, but applies different rules for determining taxable income—limiting or eliminating certain tax deductions and credits. Only 5% favour retention of the AMT.
Originally applicable to the very highest income categories, the AMT’s reach broadens each year because it is not inflation-adjusted. While affecting only one million taxpayers in 2001, it may affect as many as 30 million by 2010. Nearly half of surveyed CEOs claim to have been subject to the AMT in recent years.
“Private business owners and executives with their own personal wealth and compensation linked to their company’s overall business and tax strategies are often at high risk of being subject to the AMT,” said Janowiecki. “Many of those surveyed fall into this category, and have already been stung. Little wonder so many favour its modification or repeal.”
FEDERAL TAX PROPOSALS "TRENDSETTER" CEOs PERSONALLY PREFER
| All Trendsetter Companies |
|
| Flat Tax |
58% |
| Consumption Tax |
16% |
| Present System |
16% |
| Not Certain |
10% |
| Product Companies |
|
| Flat Tax |
60% |
| Consumption Tax |
16% |
| Present System |
16% |
| Not Certain |
8% |
| Service Companies |
|
| Flat Tax |
56% |
| Consumption Tax |
16% |
| Present System |
15% |
| Not Certain |
13% |
FEDERAL TAX PROPOSAL PREFERENCES OF "TRENDSETTER" CEOs
| FEDERAL TAX PROPOSAL PREFERENCES |
|
| Personally Prefer |
|
| Flat Tax |
58% |
| Consumption Tax |
16% |
| Present Tax System |
16% |
| Not Certain |
10% |
| Better for Growth Businesses |
|
| Flat Tax |
48% |
| Consumption Tax |
13% |
| Present System |
16% |
| Not Certain |
23% |
| MAKE PRESIDENT'S FEDERAL TAX CUTS PERMANENT |
|
| Favor |
67% |
| Not in Favor |
23% |
| Neutral |
4% |
| Not Certain |
6% |
| RETENTION OF ALTERNATIVE MINIMUM TAX |
|
| Repeal |
40% |
| Modify |
26% |
| Continue |
5% |
| Not Certain |
29% |
|
