There has been a lot of talk as to whether the latest tax reform from Washington is having an effect on our economy. You hear “this tax cut was only for the rich and does nothing for the average working man”. We hear how “this tax plan is the worst thing that has ever happened to us” and how some in congress have vowed to repeal it because “it is pure evil and only benefits the one percenters”.
We here at Fortem are not in that camp because all the economic data we rely on says otherwise.
We believe the new tax plan has had a tremendous effect in releasing pent up economic growth and extending the current business cycle. This reform was not a tax cut for everyone, but it was a well needed break for corporate America, which creates jobs and drives economic growth. The recent tax reform has allowed US Corporations to implement growth strategies they have wanted to do for the last decade. However, because of uncertain tax laws (some of this highest corporate taxes in the world), they did not consider implementing these strategies. But now, with the new tax laws, companies have a clear vision as to how to budget their growth.
Corporate America has responded in ways we never thought possible. Almost instantly, many companies like Apple, announced big plans to take advantage of the new tax plan. Thanks to the Tax Cuts and Jobs Act passed by the Republican congress and signed by President Donald Trump, 90 percent of wage earners have higher take-home pay. Companies of all sizes are already giving bonuses and raises and expanding the scope of their operations. They are bringing back money they had overseas and now paying tax on those past profits to the US Treasury. Because of the tax cuts, many utility companies are lowering rates to customers as well.
We have found one location that is tracking the effects of the tax plan and a list of companies that have passed on the tax savings. This is a good resource to see which companies have given back since the tax cuts were announced late in 2017. The website has links to the actual articles so you can go and read them if you’d like to follow up. The website is https://www.atr.org/list.
One of the things we hear is “those nasty companies are buying their own stock back to make their shareholders richer”. Shareholders are people to, made of all socio-economic groups, not just the rich. Companies buying back their stock does also actually help the average American, not just the affluent. Sixty five percent of all Americans older than age 22 (according to the US Bureau of Labor Statistics) work for a company that offers a defined contribution plan. If they choose to invest in the plan, then they are also benefiting from the stock buyback programs as would any other investor. If they have an IRA, and they’ve invested in equities, then they would also benefit here from the stock buyback. It really becomes a choice of each person, whether to invest or not. Those who choose to invest can reap the reward, and those who do not invest are free to choose not to.
We would also point out that personal wages, which were stalling out in 2016 began picking up traction in 2017. While it’s impossible to directly identify tax cuts (and not low unemployment levels) as the definitive reason for the pickup in wage growth, it’s also impossible to say that the tax plan didn’t help wage growth move forward. With the number of companies that increased compensation, gave bonuses, and increased various benefit offerings (publicly saying they did it because of the tax cuts), it would stand to reason the tax cuts did play a role in the wage growth.
We believe the Tax Cuts and Jobs Act is a great start but Congress still has more work to do. Congress needs to address the sunset provision in the new tax law for individuals, they need to pull in government spending, and look at reforming entitlements to balance our budget and reduce our national debt. We think they should be able to do this in the next year or so, once they see the full economic effect of the current tax reform. Whether Congress will have the courage do it or not is yet to be seen.