Tax uncertainty is the term for the
economic risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
that results when future
tax
A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
es and
tax rate
In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. The tax rate that is applied to an individual's or corporation's income is determined by tax laws of the country and can be in ...
s are undetermined. Similar to
policy uncertainty
Policy uncertainty (also called regime uncertainty) is a class of economic risk where the future path of government policy is uncertain, raising risk premia and leading businesses and individuals to delay spending and investment until this uncert ...
, tax
uncertainty
Uncertainty or incertitude refers to situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown, and is particularly relevant for decision ...
can impact both individuals and businesses
and has been shown in some studies to slow rates of economic growth.
In the United States
Temporary tax measures adopted in the 2000s, commonly referred to as
Bush tax cuts
The phrase Bush tax cuts refers to changes to the United States tax code passed originally during the presidency of George W. Bush and extended during the presidency of Barack Obama, through:
* Economic Growth and Tax Relief Reconciliation Act ...
, though extended in 2011, were scheduled to expire at the end of 2012.
The uncertainty surrounding changes to tax rates, as well as the availability of certain
tax deduction
A tax deduction or benefit is an amount deducted from taxable income, usually based on expenses such as those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. The diff ...
s and
credits, led to many businesses holding off on hiring and reducing spending.
Honeywell
Honeywell International Inc. is an American publicly traded, multinational conglomerate corporation headquartered in Charlotte, North Carolina. It primarily operates in four areas of business: aerospace, building automation, industrial automa ...
CEO
David Cote cited tax uncertainty as the reason why Honeywell has replaced only one quarter of departing employees in 2012 saying, "The last thing you want is to hire a lot of people and then have to lay them off."
According to a report published by the
Stanford Institute for Economic Policy Research
The Stanford Institute for Economic Policy Research (SIEPR) is a nonpartisan economic research institution housed at Stanford University. It was founded in 1982 as a way to bring together economic scholars from different parts of the University.
...
financial and tax uncertainty played a significant role in the slow recovery of the
U.S. economy
The United States has a highly developed mixed economy. It is the world's largest economy by nominal GDP and second largest by purchasing power parity (PPP). As of 2025, it has the world's seventh highest nominal GDP per capita and ninth ...
because uncertainty had led to a more cautious approach to investments and hiring.
In November 2012 the analysis firm Macroeconomic Advisers predicted that, in the absence of a resolution,
unemployment
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...
would rise to 8.5 percent and the U.S. economy would grow only 1.1 percent in 2013.
References
{{reflist
Risk
Tax policy