Is President Obama's 2011 Budget Good for Business?
Sifting through the jumbled mess that is President Obama’s budget is a task that no man, woman or even automaton should endure. It’s approximately 150 pages long, jumbled with political speak and features more graphs than a geometry book.
However, its importance cannot be denied. The 44th President’s policies are rooted within this budget. For most in the business world, this budget could represent a turning point in the economy – for better or worse. Obama says this budget focuses on creating jobs, providing small business assistance and will give American business leaders a reason to smile. However, is it that easy?
Is this $3.8 trillion budget business friendly? The answer definitely depends on who you ask.
Good for Small
In the eyes of many small business owners, this budget represents a positive step towards an economic turnaround, at least in the short term. One of the reasons is because Obama’s 2011 budget’s main focus is on job creation. Of the $3.8 trillion budget, the Obama administration dedicated $100 billion to this very cause. This $100 billion is divided into tax cuts and investments into infrastructure for small businesses.
The budget proposal also includes a $30 million redirect of funds from the Troubled Asset Relief Program (TARP) to small community banks, who in turn would lend them out to small businesses. The response from the Independent Community Bankers of America (ICBA) on this action was generally positive.
“Our nation’s nearly 8,000 Main Street community banks continue to lend to the local small businesses that fuel job creation and economic stability within their communities, and we look forward to learning more about President Obama’s proposals and Congress’s plans for small-business tax relief and TARP-funded initiatives with less onerous restrictions,” the ICBA said in a statement.
The TARP proposal is not the only small business friendly measure in this budget. Also included are a number of proposals to ease small businesses’ access to credit, such as $28 billion in loan guarantees. It also includes $14 billion in competitive technical assistance grants like the Emerging Leaders initiative. Grants like this one provide promising small businesses in troubled economic areas with connections to regional business networks.
Bad for Big
On the surface it seems much of this budget and President Obama’s policies are aimed towards pleasing the small business owners. However, what about large multinationals? For many of these companies, the budget is not as affable.
For example, included in the budget are several fees on the financial industry including a $9 billion fee on banks and insurance firms that benefited from the federal bailouts. Taxing these banks could reduce the number of loans they distribute to big business.
Obama’s budget ends certain tax breaks for the oil and gas industry. By ending these breaks and increasing taxes on the oil and gas industry, the budget would shed $38.9 billion over 10 years. However, many argue that in response to the increase in taxes, energy companies will raise customer rates. If so, this would increase the cost of doing business for many companies.
Large multinationals may have gotten the worse of this budget. Embedded within is a $400 billion tax hike for large multinational firms over the next 10 years. For these multinationals, the budget will increase the difficulty to claim credit for taxes paid overseas. By doing this, many of these multinationals would face double taxation.
The measure, which actually was a part of the 2010 budget, has been implemented to prevent these multinationals from creating jobs overseas rather than domestically. However, the CEOs of these multinationals say this will make the U.S. less competitive against international competitors and would hurt domestic job growth.
“President Obama’s proposed budget undermines the goals he stated in (the) State of the Union Address. Raising taxes on workers and businesses would impede U.S. competitiveness, making it virtually impossible to meet his target of doubling exports. As CEOs leading the economy back to a path of growth, our members are concerned that President Obama’s proposed international tax increases on U.S. companies will impede economic growth and make it harder to create jobs and lower America’s double-digit unemployment rate,” stated John J. Castellani, President of Business Roundtable, an organization representing the CEOs of large U.S. based multinationals.
The above summary is just the tip of the iceberg. With all of its complexities, the 2011 budget is not the easiest document to comprehend. However despite this being the case, it seems to have a fairly straight foreword message.
For small businesses, this budget is a big help. It focuses on growth, development and job creation. For multinationals, the budget is more difficult to take as it represents increases in taxation. In life you can’t please everyone and this budget is certainly proof of that.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.