Tax Policy Fog Lingers as CFO Optimism Rises: Grant Thornton Survey
The latest Grant Thornton survey shows that CFO optimism has rebounded significantly after the U.S. election, with 68% of respondents feeling optimistic about the economic outlook, the highest level since the third quarter of 2021. However, uncertainty over tax and regulatory policy continues to loom over corporate financial decisions: 33% of respondents view tax changes as the top election-related factor affecting their business this year. A Republican sweep of Congress could pave the way for new tax legislation, but the specifics remain unclear. Dustin Stamper, Managing Director of Grant Thornton's Washington National Tax Office, cautions that CFOs should not plan based on hope alone. Additionally, the Trump administration has taken a hard line on the global tax agreement (Pillar 2), which could affect U.S. multinationals. Several provisions of the TCJA are set to expire this year, and Republicans are still weighing whether to make them permanent. Meanwhile, after the Federal Reserve cut interest rates by a cumulative 100 basis points, CFOs are more optimistic about the financing environment, with 45% of respondents increasing specific investments due to the election outcome.
Key Takeaways:
- A recent Grant Thornton survey found that CFOs, emerging from uncertainty ahead of the November presidential election, have seen a rebound in optimism about the economy and business outlook, but still face an unclear landscape in key areas such as tax and regulatory policy.
- The fourth-quarter survey of more than 250 financial leaders showed that 33% of respondents viewed tax changes as the "election-related factor" most impacting their business this year, followed closely by regulatory policy. Grant Thornton noted that the scope and direction of potential policy shifts remain unclear.
- Grant Thornton said a Republican sweep of Congress could clear the way for new tax legislation. Many financial leaders hope that certain tax provisions—such as the ability to deduct research and development expenses, which was eliminated starting in 2022—could be restored, said Dustin Stamper, managing director of Grant Thornton's Washington National Tax Office. However, the challenge for CFOs is that "you shouldn't plan on hope or prayer," Stamper said in an interview.
Deep Dive:
After the election, CFO optimism surged on expectations that the Trump administration would deliver on promises to ease regulations and cut corporate taxes.
Grant Thornton data showed that 68% of CFOs said they feel optimistic about the economic future, the highest level since the third quarter of 2021. Financial executives also reported 13-quarter highs in key metrics such as growth expectations (65%), cost control targets (62%), and workforce demand (60%).
The Trump administration has already taken several actions on tax policy. Amid a flurry of actions in the first week of his second term, President Donald Trump issued a memorandum aimed at ostensibly withdrawing the U.S. from the "global tax deal" created in 2021 to implement global tax rules.
Under that deal, 130 countries agreed to establish global tax standards—including setting a global minimum effective corporate tax rate of 15% under the so-called "Pillar Two" framework. The agreement was championed by former Treasury Secretary Janet Yellen but failed to overcome opposition from Republican lawmakers.
Stamper said the move to withdraw from implementing Pillar Two was not surprising in some sense. Importantly, the current administration has taken "a more aggressive stance" on other countries' implementation of Pillar Two, he said.
"So, if they impose reciprocal tariffs or reciprocal taxes on foreign countries, that could have a considerable impact on U.S. multinational companies," he said. However, whether the Trump administration's moves to increase scrutiny of foreign taxes or tariffs on U.S. companies will persuade other countries to withdraw their own Pillar Two implementation plans remains unclear.
Financial executives are still waiting to see whether other tax policies the president proposed during his campaign can gain traction.
For example, the Tax Cuts and Jobs Act (TCJA), passed in 2017, expires this year. According to the IRS, the act triggered broad changes in "deductions, depreciation, expensing, tax credits, and other tax items."
In the early days of Trump's second term, Republican lawmakers are still finalizing their approach to tax policy, including whether to make permanent the changes brought by the TCJA, according to a recent Politico report.
However, Stamper made clear that implementing the TCJA "is not going to be a binary operation where Republicans just extend everything as it was in 2017." "So you have to go provision by provision and say, 'Hey, what are the Republicans going to do with this specific provision that affects my business, or what are they going to do with this specific provision that affects my business?'"
Amid weighing large-scale tax or regulatory changes, the surge in optimism has also prompted many financial executives to rethink their investment strategies. After the Federal Reserve cut interest rates three times for a cumulative full percentage point, financial executives are "less focused on liquidity, debt, and access to capital," Grant Thornton found. "Financing their optimistic plans seems to have become easier."
The survey showed that 45% of respondents said the election results prompted them to increase certain investments. Companies continue to ramp up spending on emerging technologies such as artificial intelligence—68% of financial leaders said they have achieved "at least double the return on investment," Grant Thornton found.
"If the new administration provides more generous R&D tax credits or deductions, my business could be motivated to accelerate innovation, invest more heavily in new products or technologies, or expand my R&D team," one financial leader said in an accompanying statement to the survey.