Kate Barton, EY Global Vice Chair for Tax, joins Yahoo Finance's Alexis Christoforous to discuss how to prepare your taxes for 2021.
ALEXIS CHRISTOFOROUS: Here to help us out is Kate Barton, EY's Global Vice Chair for Tax. Kate, lots to unpack here. I want to start with President-elect Joe Biden's promise to reverse the Trump corporate tax cuts. Do you think he will be able to successfully raise the corporate tax rate from its current 21% to 28%, which is what he's vowed to do?
KATE BARTON: Well, Alexis, delighted to be here with you. And I think it's going to be tough to get that done in the current environment. I mean, we obviously are all watching the Georgia runoff elections to see how the government shapes up.
So we need to see what happens with the Senate. But even if the Senate goes-- those two seats go Democratic, I think it's pretty clear that it's going to be tough for everybody to vote during their-- or along their party lines. And so how much of President-elect Biden's plan he's able to get done remains to be seen in this divided government.
ALEXIS CHRISTOFOROUS: OK, well, with a divided government, what tax policy changes are within reach? What do you think the Biden administration will be able to do, and perhaps be able to do very early on, in the presidency?
KATE BARTON: Well, if the government stays divided, or even if the margin is so low that it's difficult to-- to get things done, I think we're going to see more through, once again, executive orders or two, through regulation. So that could be two ways that President-elect Biden goes ahead. So I wouldn't underestimate those.
But I think one of the big places that he might have some success at early on is-- is really around supply chain and making-- one of the proposals that he had in his plan was to bring back manufacturing to the US. And so there are some smaller elements in the tax act that he could change maybe through reg or-- or through an executive order to get manufacturing closer to the consumer in the US. And so that's a big aspect that a lot of our clients are looking at and staying in tune to.
The second area is really on the global platform. You're probably familiar, Alexis, with the fact that the OECD has been looking at how they can harmonize tax rules around the world. And so it's a really lofty ambition and one that has a lot of constituents really focused on this.
And so I do think that Biden will bring a different approach. I think it will still be protection for the US multinational, but I think on a more diplomatic stage. And I can't tell you how important the two big areas that the OECD is working on and how that impacts a lot of companies in the US.
ALEXIS CHRISTOFOROUS: Speaking of the diplomatic stage, what about tariffs, one area that may be very different between the Trump administration and the Bush administration? Do they remove tariffs, do you think, on China, on the EU, in the first 100 days?
KATE BARTON: I think the first 100 days are going to be pretty focused on getting this health crisis under control. And so it strikes me as certainly that is going to be something that has to be dealt with and how that gets done and the interplay between those-- the important countries. We have tariff issues with France because of the digital services taxes and China. So those are key issues. But in the first 100 days, I'm not sure that's going to be the first thing that gets tackled.
ALEXIS CHRISTOFOROUS: What do you think-- on the tax front, though, what do you think would probably be the easiest thing or the-- the path of least resistance for the Biden administration when it comes to corporate taxes?
KATE BARTON: I think that one of the biggest areas that they can focus on is-- is making sure that manufacturing gets done closer. I mean, one of the big things that President-elect Biden had was his, you know, made in America provisions where he, too, wants to bring things back. And so there's a lot of intricacy in the tax rules right now where it's not just about the headline rate, Alexis, it's-- it's about what you actually pay.
And I think it's important out there, a lot of our clients are very focused on the JOBS Act, which is the regime that came in when Trump was in his four years. It has provisions that will naturally expire. So if nothing's done, taxes are going up, cash taxes are going up 4% for most taxpayers.
And that's because, you know, three things happen-- interest expense is more difficult to get deducted for corporations. Bonus depreciation goes away. And R&D, which I know is important to a lot of clients that are listening, that also goes away. So those expiring provisions need to be dealt with.
So I think that might be one of the first orders of business, does he let those expire? Or does he adjust those and, at the same time, look at that headline rate and try to bring it up? But it's going to take-- you know, our best look at this is it's going to take a lot of artful negotiation across the aisle.