As an Iowan, I’m still recovering from the hangover we call the Iowa Caucuses. Because of the presidential campaign, one of the injustices we were frequently assaulted with in television ads and phone calls was the “empty promise.” Political ads for presidential candidates made bold promises that were beyond the Constitutional authority of the position of president. I noticed the most frequently mouthed empty promise revolved around taxes. The typical candidate stated that when he was in charge, “taxes would be lowered.” No specifics, no indication of how to pay for it, no mention that perhaps Congress might have a differing opinion.
These amorphous tax claims make for great entertainment and plenty of copy for journalists, but they don’t provide any guidance for the entities that have to pay these taxes. Businesses in particular are being left in the dark as to what will happen with their taxes, especially since many key tax breaks expired when the clock hit midnight at the beginning of this year. Prognostication with taxes is always dangerous, but I’d like to suggest four items businesses should consider in planning for taxes this year—particularly as they apply to benefit planning.
1. Overall taxes are more likely to go up than down. Three factors drive this opinion from the tax community. First, the federal debt is approaching $15 trillion. It’s difficult to imagine a way to grow or save ourselves out of this large debt. Second, the political mood is not to extend tax cuts for businesses. Especially since a number of breaks expired this year, inaction by Congress translates to automatic increases in taxes for businesses. Finally, businesses need more and more to factor in state and local taxes. In many jurisdictions, their treasuries are empty, and they need to fill their coffers quickly.