Finance chiefs were in the spotlight on Capitol Hill Thursday as they testified before the House Ways and Means Committee about the corporate tax rate. At a hearing convened by committee chairman Dave Camp (R-Mich.), CFOs Greg Hayes of United Technologies, Mark Buthman of Kimberly-Clark, Ed Rapp of Caterpillar, and James Crines of medical-device maker Zimmer Holdings testified that they would like to see the rate lowered and the tax code overhauled to reduce complexity and enable better planning.
While all four finance execs said they’d like to see a corporate rate closer to 25% than the current rate of 35%, they are also looking for more predictability around tax issues such as the research and development tax credit, which requires annual renewal by Congress. They said they’d be willing to give up some deductions to achieve such changes.
“Our system actually hinders success,” said Hayes. “It was designed when the U.S. was the dominant economy, and before globalization became an unmistakable market reality.”
Hayes’s dim view of the corporate tax system is shared by many of his fellow CFOs. In a new survey by CFO due to be released on June 1, nearly half of the 191 U.S. finance chiefs polled said the system has some flaws and needs some reforms, while another 39% said it is seriously flawed and needs a complete overhaul. Just 12% said the system works reasonably well today.
In line with their peers at the House hearing today, CFOs on average said they consider 23% to be a reasonable overall corporate rate. A majority said the current rate affects decision making at their companies at least somewhat, and 17% said it affects decisions “a lot.”
Their frustration with taxes was not limited to the federal code: while half of the CFOs said federal taxes are their biggest headache, 49% said state tax compliance is even more challenging. To cope, a vast majority hire outside tax help, and most expect their spending on such advice to increase over the next five years.
Editor’s note: For full survey results and analysis, see the upcoming Deep Dive survey in CFO’s June issue.