Financial leaders must act quickly to address the 'tax trifecta'
The U.S. elections, the implementation of the global minimum tax, and the expiration of provisions in the 2017 tax cut act form a 'tax trifecta,' requiring corporate financial leaders to act swiftly and conduct scenario planning to navigate uncertainty.
Editor's Note:Rema Serafi is the Vice Chair of Tax at KPMG. The views expressed in this article are solely those of the author.
The tax policy landscape is poised for significant change, perhaps even dramatic shifts. With the U.S. presidential election approaching, the U.S. remaining outside the global minimum tax agreement, and trillions of dollars in provisions from the 2017 Tax Cuts and Jobs Act (TCJA) set to expire, businesses must remain vigilant and proactively plan for the upcoming "tax trifecta."
The 2024 Election and Tax Policy
The 2024 presidential election will undoubtedly have a significant impact on the direction of the tax system. If President Biden is re-elected, he may revive core elements of his "Build Back Better" plan, including raising tax rates for corporations and high-income individuals while protecting those earning less than $400,000 annually. For businesses, this could mean higher corporate tax rates, increased taxes on multinational enterprises, and an expanded Corporate Alternative Minimum Tax.
Conversely, if Trump is re-elected, he would likely focus on preserving most of the TCJA tax cuts and may impose a 10% tariff on all U.S. imports. Given the significant policy differences between the two parties, the election outcome will have a major impact on corporate tax planning.
TCJA Provisions Expiring
The individual income tax provisions in the TCJA expire at the end of 2025, further adding to the uncertainty facing businesses. Extending these tax cuts wouldsignificantly reduce federal revenue, and make it harder to address growing budget deficits. Regardless of which administration takes office, it will need to address these expiring provisions and their economic impact.
Global Minimum Tax
The OECD's "Pillar Two" global minimum tax took effect on January 1, 2024, and has been implemented in more than 30 countries. Although the U.S. has not signed on, U.S. multinational corporations are facing compliance challenges and the impact of rising tax rates in countries such as Bermuda, Ireland, and Singapore.
With the 2024 election approaching, the fate of Pillar Two in the U.S. remains uncertain, adding further complexity for businesses. The OECD will continue to issue administrative guidance, changing how the minimum tax rules are interpreted—this will ultimately provide more certainty in the future, but for now it brings more disruption.
Given the multiple changes ahead in tax policy, businesses must adopt a proactive scenario-planning approach and be prepared to adapt. For example, by integrating advanced data analytics tools, companies can simulate various tax scenarios and their potential impact on financial performance. Real-time monitoring systems are also crucial for staying informed of legislative changes and quickly adjusting strategies. The power of generative AI within these systems can help synthesize complex information and deliver actionable insights faster than ever before.
Businesses must begin planning now, ahead of the upcoming election, to avoid being caught off guard by sudden policy changes. By understanding the potential consequences, companies can mitigate risks and ensure they are fully prepared for the inevitable ripple effects of the "tax trifecta."