What tax reform means for corporations, the working and middle classes and you. Below is Andy’s breakdown of how the GOP tax plan will impact everyday Americans and corporate America:
The Republicans tax bill (passed without a single Democrat’s vote) will generate jobs by encouraging economic growth. As President John F. Kennedy famously stated when arguing for tax cut legislation, economic growth is that “rising tide” that lifts all boats. That rising tide puts the lie to the Democrat’s specious claim that this bill sells out the poor and middle class to enrich the wealthy elite.
The tax bill will generate economic growth by encouraging business investment, which is the key to meaningful domestic economic growth. During the presidency of Barack Obama, the regulatory state dramatically expanded and investment declined, resulting in anemic GDP growth and leading to predictions of prolonged economic stagnation. As the Trump administration deregulates at an historic pace, it is no coincidence that business optimism is hitting historic highs, already driving both increased investment and greater GDP growth. In fact, even with just regulatory relief, President Donald Trump’s Council of Economic Advisers projected the U.S. economy would have experienced 3.9% GDP growth in the third quarter of 2017 if it weren’t for a pair of devastating hurricanes, Maria and Harvey, but even that only slowed third quarter GDP growth to 3.3%. Also, The New York Federal Reserve – not a bastion of conservative economic thought – recently raised its estimate of U.S. gross domestic product growth for the fourth quarter of 2017 closer to 4%. The U.S. tax code overhaul will foster business investment, accelerating that growth and promoting productivity.
The tax reform bill has everything to do with incentivizing new investment by allowing businesses to retain more of the monies they earn, encouraging them to bring funds they’re holding overseas back to the U.S., and allowing them to write off 100% of their investments in plants and equipment in the year the investments are made, further lowering their near-term taxes. If CEOs believe in their businesses – and most do – then they will invest.
When businesses invest in growth, they create jobs which in turn, creates competition for employees. When employers compete for workers, wages go up. When employers compete with each other for jobs, wages stagnate or decline (as they did in the Obama era). According to the Bureau of Labor Statistics, “Job openings have been at or near record high levels since June” and stood at 6 million at the end of October (the most recent data available). The tax bill will increase that number and, as a result, competition for employees and wages will increase.
Encouraging growth will be increasingly important as the Federal Reserve moves to raise interest rates. Ultra-low interest rates increased the value of stocks and real estate during the Obama years. This benefitted people who owned or could purchase those types of assets – generally, affluent people. President Trump’s tax bill, on the other hand, encourages U.S.-based business investment, which generates economic growth, creates more jobs and, in turn, increases wages. In other words, this bill will benefit working and middle-class Americans by reinvigorating economic growth, leading to a more participatory American economy and broad-based prosperity.
Based upon passage of the Republican’s tax reform legislation, I believe we will start seeing wages increase during the second quarter of 2018. Nonetheless, we are already seeing some very positive impact from this legislation. After Congress passed the Tax Cuts and Jobs Act, corporations immediately announced Christmas bonuses and more charitable giving. AT&T is giving $1,000 in year-end bonuses to its 200,000 employees and increasing its U.S. capital spending. Boeing announced $300 million in employee-related investments. Fifth-Third Bank announced a $15 minimum wage and $1,000 bonuses for its 13,500 employees. Wells-Fargo announced a $15 minimum wage and charitable donations of $400 million. Comcast said it would give 100,000 non-executive employees a $1,000 bonus and increase capital spending. Contrary to the Democrats dire predictions (Senate minority leader Schumer, even criticized AT&T for not passing benefits on to their workers), more positive news for American workers is sure to come.