A majority of CEOs identified the prospect of steeper taxes this year as the greatest global threat to business growth as Democrats look to substantially raise rates on corporations in order to fund a sweeping, multitrillion-dollar spending package.
A new survey published by KPMG on Wednesday shows that chief executives ranked tax risk as the top threat to their organization's growth – ahead of supply chain limitations, climate change and cyber security.
"Tax has perhaps never been as top-of-mind for CEOs as it has been over the last year," said Greg Engel, the vice-chair of KPMG. "With another round of U.S. tax reform on the horizon, to a monumental global tax deal that will alter the way multinationals and digital services are taxed…it’s no wonder CEOs ranked tax risk as one of their top threats to growth."
Democrats are currently crafting a $3.5 trillion bill that seeks to dramatically boost federal investment in education, child care and paid family leave and would be funded by higher taxes on corporations and wealthy Americans.
Although formal legislation has not yet been released, some of the proposals include hiking the corporate rate to 28% from 21% – reversing a key part of Republicans' 2017 tax law. However, given their extremely slim margins in both the House and Senate, Democrats will need to ensure virtually every caucus member votes in lockstep to ensure the bill's passage.
The Biden administration is also spearheading an international movement to impose a global minimum rate on companies' foreign profits, a move that's intended to eradicate certain tax havens that allow multinational companies to shield their profits, while giving smaller countries more tax revenue from bigger firms.
Treasury Secretary Janet Yellen has said a global tax, which would apply to companies' overseas profits, would eliminate what she's described as a "global race to the bottom" in terms of corporate taxes.
So far, 130 countries in the Organization of Economic Cooperation and Development have endorsed the global minimum rate – which is a growing concern to CEOs across the world. More than three-fourths – about 77% – of the survey's respondents said the proposed global minimum tax rate is a "significant concern" to their growth goals over the next three years.
"CEOs and the broader C-suite are on the edge of their seats asking ‘How likely?,’ ‘How much?’ and ‘How soon?’" Engel said. "This uncertainty, after corporate tax and finance departments just acclimated themselves to the major reforms ushered in by the 2017 Tax Cuts and Jobs Act, has created a great sense of unpredictability leaving many leaders questioning how and when to prepare."
The KPMG survey of 1,300 CEOs at large companies includes responses from more than 400 executives in the U.S. It was conducted between June 29 and Aug. 6.