Dive Brief:

• CFOs emerging from the uncertainty that preceded the November presidential election feel more upbeat about economic and business prospects but still confront a cloudy outlook in key areas including tax and regulatory policy, Grant Thornton found through a recent survey.
• Thirty-three percent of respondents pointed to changes in tax policy as the “election-related factor” that would most influence their businesses this year, with regulatory policy coming in a close second, the fourth quarter survey of more than 250 financial leaders revealed. However, the scope and direction of the potential policy shifts is unclear, Grant Thornton said.
• The Republican sweep of Congress may smooth the path for new tax legislation, Grant Thornton said. Many finance leaders are hopeful that certain tax provisions — such as the ability to deduct research and development costs, which was removed beginning in 2022 — will be reinstated, said Dustin Stamper, managing director in Grant Thornton’s Washington National Tax Office. However, the challenge facing CFOs is, “you shouldn't do your planning on hope or with your fingers crossed,” Stamper said in an interview.

Dive Insight:

CFO optimism surged after the election on anticipation that the Trump administration will make good on promises to ease regulation and cut corporate taxes.

Sixty-eight percent of CFOs reported that they feel optimistic about the future of the economy, the highest figure since Q3 2021, according to Grant Thornton. Finance chiefs also reported 13-quarter highs regarding their confidence in meeting growth projections (65%); cost control goals (62%); and labor needs (60%), among other key metrics, the survey found.  

The Trump administration has already taken several actions related to tax policy. Among a flood of actions taken in the first week of his second term, President Donald Trump issued a memorandum aimed at ostensibly pulling the U.S. out of a “global tax deal” created in 2021 for the implementation of global tax rules.

Under the deal, 130 countries agreed to create global tax standards — including setting a global minimum effective tax rate of 15% for businesses under so-called “Pillar 2” standards. The agreement, championed by former Treasury Secretary Janet Yellen, failed to overcome opposition from Republican lawmakers.

In one sense, the move to walk back any commitment to implement Pillar 2 isn’t surprising, Stamper said. What is significant is that the current presidential administration is “taking a much harder stance” when it comes to other countries implementing aspects of Pillar 2, he said. 

“So to the extent that they impose reciprocal tariffs or reciprocal taxes in other countries, that could affect U.S. multinationals quite a bit,” he said. However, it’s not clear if the Trump’s administration’s move to place more scrutiny on foreign taxes or tariffs on U.S. companies will persuade other countries to walk back their own Pillar 2 implementation plans.

Finance chiefs are also still waiting to see whether ther tax policies proposed by the president on the campaign trail will gain traction. 

For example, the Tax Cuts and Jobs Act passed in 2017 is set to expire this year. It prompted widespread shifts in “deductions, depreciation, expensing, tax credits and other tax items,” according to the Internal Revenue Service.

In the early days of Trump’s second term, Republican lawmakers are still hashing out their approach to tax policy, including whether to implement the changes brought about by the TCJA permanently, according to a recent report by Politico.

However, it’s clear that implementing TCJA is “not going to be a binary exercise, where Republicans just want to extend everything exactly as it was in 2017 in its current form,” Stamper said. “So you really have to look through to individual provisions and say, ‘hey, what are Republicans talking about doing with this specific thing that impacts my business, or this specific provision that impacts my business?’”

While they mull large-scale tax or regulatory changes, the surge in optimism is also causing many finance chiefs to rethink their investment approaches. Following three cuts to the Federal Reserve’s main interest rate totaling a full percentage point, finance chiefs are “focusing less on liquidity, debt and access to capital,” Grant Thornton found. “Funding their optimistic plans appears to be getting easier.”

Forty-five percent of respondents said the election results have prompted them to increase certain investments, according to the survey. Businesses have continued to boost spending on emerging technologies such as artificial intelligence — where 68% of finance leaders said they have realized returns “at least double of their investment,” Grant Thornton found.

“If the new administration provides more generous R&D tax credits or deductions, my business may have an incentive to accelerate innovation, invest more heavily in new products or technologies, or expand my R&D team,” a finance leader said in a statement included in the survey.