Majority of Business Execs Urge Public Spending Cuts Over Tax Hikes to Lower Government Debt: KPMG Survey

NEW YORK, Sept. 29 /PRNewswire/ -- Six out of 10 U.S. business leaders say that public debt should be reduced through cuts in public spending rather than increased taxation, according to "Paying the Bill," a study released today by KPMG International.

Reductions in defense spending and in some of the country's social welfare programs were the most prevalent options for public spending cuts in the KPMG study, chosen by 58 percent of respondents, which included chief executives and senior officers of companies in a wide range of industries with annual revenues ranging from less than $1 billion (U.S.) to more than $5 billion (U.S.).  A total of 33 percent surveyed favored cuts in public sector pay and spending on public infrastructure projects.

And while increased taxation is not a popular prospect in the United States, 18 percent of the U.S. business leaders surveyed did rank it as a favorable option for cutting government debt – but only if the revenue was strictly earmarked for paying back debt and was not part of the general tax revenue stream.

Other views on how the debt should be reduced are varied: Some 28 percent of the U.S. executives surveyed in the KPMG study favor the adoption of non-taxation measures, 18 percent want the government to only make interest payments on public debt, and 10 percent want the government to take no steps.

"It's not surprising that most U.S. business leaders we surveyed prefer spending cuts to tax increases," said P. Scott Ozanus, vice chair - tax, KPMG LLP. "But fiscal and political pressures make it realistic to anticipate that the U.S. and local governments will continue to sharpen their tax enforcement efforts as one means of raising revenue.

"Many of these executives are already seeing increased regulatory oversight of their tax operations, more tax audits, and stricter disclosure requirements for their business operations in areas such as cross-border transactions, transfer pricing and uncertain tax positions," Ozanus added.

In other findings, the "Paying the Bill" study revealed that although 41 percent of U.S. business respondents believe the Government's stimulus package has been an important factor in recent economic growth, nearly twice as many (77 percent) suggest that the increase in consumer spending has been a key driver of the recovery, while 45 percent also rank the reduction in interest rates as a key contributing factor to improvement in the nation's economic condition.

Moreover, with the U.S. economy now showing signs of stabilization, if not recovery, 65 percent of those surveyed want stimulus measures to be stopped immediately. Some 23 percent advocate extending the measures for six months and 13 percent would leave them in place for 12 months.

Is U.S. Consumption Tax Looming?

While the United States lacks one funding source that most other major economies can draw upon for revenue -- a value added or federal sales tax -- the KPMG study documents that over the past decade there has been a slow movement by other countries away from taxes on corporate income and toward indirect taxes by global tax regulators.

"In the U.S., the realities of the nation's fiscal situation will probably lead government tax policymakers to consider some combination of spending cuts and additional revenue within the next decade or sooner," Ozanus added. "A federal value-added tax, which taxes the transfer of goods and services, will clearly be on the table as a topic of increasing discussion."

Globally, the KPMG International study revealed that a majority of business leaders surveyed (72 percent) are concerned about their country's level of public debt and most (7 out of 10) also believe that cutting public spending is the preferred method for cutting the debt.

About the Global Study

A report summarizing the complete global results of the study can be accessed at:

www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/paying-the-bill.aspx.

KPMG International's study, titled "Paying the Bill," surveyed 538 senior corporate decision- makers from 26 countries, including 40 in the United States, on the success or failure of their government's economic stimulus programs and on the best way to deal with the resulting public debt.  The effect on future tax initiatives was at the core of the discussions, which were conducted during spring 2010.

The study is being issued to coincide with KPMG's European Tax Summit in Prague on Sept 29.

About KPMG International

KPMG is a global network of professional firms providing audit, tax and advisory services. We operate in 144 countries and have 137,000 people working in member firms from around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.

SOURCE KPMG