Raleigh, N.C. — The president of the United States has promised that tax cuts now moving through Congress will “supercharge” the U.S. economy.
His White House Council of Economic Advisers predicts that corporate tax cuts alone – the largest cut in Republican bills moving through the House and the Senate – will increase average household incomes by, “very conservatively, $4,000 annually.”
With more optimistic assumptions, that increase runs as high as $9,000 a year, the council has said.
Armed with such rosy predictions and an armful of political promises from Republican politicians backing reforms, WRAL News went looking for businesses ready to raise worker wages once these cuts hit the books.
They proved more difficult to find.
WRAL News reached out to 40 of the Triangle’s largest employers, asking whether they favor the tax proposals, whether the bills would be good for the middle class and whether their company would increase salaries or hire new workers because of the tax cuts.
Most simply didn’t respond, declined to comment or did not answer the actual questions. Four said something akin to yes.
Small businesses, which are likely to benefit from other portions of the tax bill, were easier to pin down. But even business owners optimistic about the overarching effect of these reforms expressed some wariness with parts of the proposals and skepticism over whether other companies will pass cash generated by lower tax burdens along to their workers.
Economists can be found on either side of this debate, though certainly there’s no shortage of expert criticism for legislation that, according to data compiled by The Washington Post, would benefit the rich more sharply than tax policies advanced under presidents Ronald Reagan and George W. Bush.
“I think it’s a disaster for the middle class,” said Richard Schmalbeck, a professor at Duke University specializing in federal tax law.
Roy Cordato, the senior economist at the right-leaning John Locke Foundation, sees the situation 180 degrees different.
“There’s no question in my mind that wages will go up because of capital investment … and I do think capital investment will go up because of this bill,” he said. “How much? I don’t know.”
Corporate tax cut major element
There are two bills, one backed by House Republicans and one by Senate Republicans, and the two sides must find agreement before anything becomes law.
But they already agree on major elements, including cutting the corporate tax rate from 35 percent to 20 percent, which is also a major goal for President Donald Trump. That would make the rate significantly more competitive with other industrialized countries, though creative accounting already allows U.S. corporations to pay much less than 35 percent in taxes.
This change and others would free up cash for companies to potentially invest in new equipment, hire more workers, pay higher wages, pay shareholders larger dividends or buy back their own stock, a move that increases shareholder value.
Available cash may not be an impediment to expansion right now, though. Value in the stock market has more than tripled since the nadir of the Great Recession, based on the Dow Jones Industrial Average, which is up 10,000 points compared to pre-recession highs.
Wage growth has not yet rebounded to its pre-recession levels, however. Trump’s economic council posits that “reductions in the corporate tax rate may offer a potent solution” to this “tepid wage growth.”
There are dozens of provisions in these tax bills beyond the corporate cut, and the legislation would add more than $1 trillion to the national debt even under optimistic analysis. Democrats warn this will eventually mean major cuts to Social Security and Medicare. Also, while corporate rate cuts are permanent in the bills, changes benefiting the middle class expire, at least in the Senate version.
Some have pointed to this as an eventual tax increase for middle-class taxpayers, though that assumes U.S. tax policy remains unchanged for a decade once a final bill passes.
The proposals both tinker with individual tax rates and increase the standard deduction, which is the income people can make and pay zero federal income taxes on. It would go from $13,000 now for married couples filing jointly to $24,000 in the Senate plan, or $24,400 under the House plan.
The rate shifts and standard deduction increase represent a $2 trillion tax cut, over 10 years, for people at all income levels. This would be heavily tempered, though, for people who itemize deductions, many of which would be done away with as the code is simplified. The personal exemption would end as well.
Because of this give and take, it’s the corporate tax cut, valued at $1.5 trillion over 10 years, that drives the bill, Schmalbeck said.
“Everything else in this bill is basically revenue neutral in the aggregate,” he said. “What’s given with one hand is sort of taken away with the other.”
Few promises from big companies
Cordato said it’s unfair to look at corporate tax cuts as benefiting only the wealthy.
Companies pass these taxes on to consumers, he said. Millions of Americans are shareholders in these companies through 401(k)s, pensions and other retirement plans. Even if companies pay their new tax savings out in dividends, the shareholders who benefit will likely invest that money, driving economic growth, he said.
But companies offer few promises to pass new profits on to workers. Of the large employers surveyed this week, only IBM, Duke Energy, UPS and poultry processor House of Raeford said they plan to expand next year, and not all those plans are contingent on tax reform.
Juan Carlos Suárez Serrato, an assistant professor of economics at Duke University, said his study of every state-level corporate tax change since 1980 led him to conclude that companies “definitely take into account” tax rates when deciding to expand.
But he also said that, when corporate taxes are cut, “more than half of the benefit has gone to owners.”
A spokesman for House of Raeford said the tax bill makes the company “more likely to consider an increase in capital spending which could lead to additional jobs in the future.” IBM’s chief executive has said the company, which has one of the largest campuses in Research Triangle Park, plans to expand its work force.
UPS said it’s already “in the middle of a historic investment cycle” driven by the increase in online shopping and, thus, shipping. A tax code that “grows GDP, is stable and predictable will allow big and small businesses to make strategic decisions that will create jobs and grow their business,” the company said in a statement.
Duke Energy plans to invest billions into infrastructure in the coming years, though as a regulated monopoly much of that work requires approval from state regulators who set utilities rates. Duke is particularly interested in preserving interest deductibility for regulated utilities in this bill, which lowers its cost of infrastructure investments.
AT&T wasn’t included in WRAL News’ survey this week, but it has a significant North Carolina presence, and the company recently promised $1 billion in investment next year if the federal corporate rate goes to 20 percent. The company also said every $1 billion in capital invested in the telecommunications industry creates about 7,000 jobs.
Beyond the rate cut, a change in the way companies can write off major purchases will also boost investment, Cordato said. Allowing companies to expense these investments immediately instead of over 10 years will boost wages because these investments make workers more productive, he said.
Small business for it, against it
In casting a wide net for business owners willing to discuss potential expansion plans, WRAL News reached out to all 13 North Carolina members of the House of Representatives and the state’s two U.S. senators, seeking contact information for businesses they’ve heard from on the tax bills.
Only three responded. Republican 2nd District Congressman George Holding’s spokesman said he didn’t think it would be appropriate to pass along any any names, while Republican 8th District Congressman Richard Hudson’s office suggested three business managers, all in support of the bills if not entirely comfortable with each of their still-shifting elements.
Calls to state and national trade groups for retailers, restaurants and hotels, as well as the National Federation of Independent Business’ North Carolina chapter, failed to add any names to that list.
“Small businesses aren’t going to make the commitment to doing anything until the actual bill comes out,” said Ann Edmondson, senior director of communications for the North Carolina Retail Merchants Association.
A spokesman for Democratic 4th District Congressman David Price forwarded a letter from The Main Street Alliance, which listed 1,500 businesses opposed to the tax plan, including about 47 from North Carolina. They cited concerns about future cuts to Medicare and Medicaid that could be used to balance future deficits created by the bill and worries about a federal government unable to fund needed infrastructure.
“We, the undersigned small-business owners, demand that you oppose the tax scam that is currently being consider [sic] by Congress,” the letter states.
Bill Camp, who signed the letter and owns Triangle Design Kitchens in Raleigh, said he expects his taxes go up under this legislation, if not at first, then once personal income tax rate cuts and the standard deduction expire after 2025.
But perhaps a bigger concern for Camp is that Republican leaders from both chambers have discussed repealing the Affordable Care Act’s “individual mandate” as part of this bill. That mandate requires people to have health insurance or pay a fine, and it’s an underpinning of reforms that created the insurance exchanges that Camp, a diabetic, said he depends on to purchase affordable coverage.
“It’s not going to stimulate growth,” Camp said. “This is just a redistribution of wealth.”
Other state business owners are more optimistic.
Doug Stafford, whose Charlotte company develops and manages hotels, said he expects benefits of tax reforms in his industry to end up in the hands of investors, which will drive new investment, which will increase demand for hotel workers, which will increase wages.
John Buie, chief financial officer of a screen-printing and embroidery business in Hope Mills, said the tax cuts would help his company buy a new machine it’s been eyeing. That would also mean new hires at his company of 27.
Buie said he sees a fair argument, though, when people say these bills will help the wealthy over average Americans. A lot will depend on what companies, small and large, do with their savings.
“Whether the winners exceed the losers or not, I can’t tell you,” Buie said.
In Concord, custom manufacturing plant owner Courtney Ketchie said she’s waiting to see what the final bill looks like, but she’s also planning to hire more people next year, as well as increase wages.
She’s concerned how quickly the bills are moving through Congress, though. Serrato, the Duke economics professor, shared that worry, calling the process “rushed in a way that it just cannot be that careful” and predicting that important details will go unnoticed for months after a final bill passes.
Ketchie said she may lose some deductions in the final bill and that it remains to be seen how that balances with her future tax rate. But she said any savings will go back into her business of 25 employees and that she’s planning on quarterly bonuses next year.
Will other owners, and perhaps larger corporations, follow suit? Perhaps not, Ketchie said.
“I think,” she said, “that unfortunately a lot of people are greedy.”