Perhaps the biggest controversy surrounding the the 2017 Tax Law (also known as the Tax Cuts and Job Act) is whether the act will, in fact, result in the creation of new jobs. While only time will tell, some are quite optimistic. Conservatives believe that the beneficial treatment of businesses, mostly the reductions in the corporate tax rate (a 21 percent corporate tax rate, down from the current federal rate of 35 percent), will encourage significant new investment in the U.S., which proponents believe will benefit workers primarily through higher wages and more jobs. Also, proponents believe that there will be a job-boosting repatriation of money from business and funds currently being held overseas.
Due to the fact that the act imposes a new, one-time transition tax on international firms’ accumulated overseas profits, the theory is very credible. The one-time tax rate is 15.5 percent for liquid assets and 8 percent for physical assets. The law also expands allowable business expensing, which allows companies to deduct the cost of investments immediately and removes a current tax bias against investment. An optimistic estimate of what effect the new tax law will have on the creation of jobs can be found by looking at various predictions and company statements.
Growth Estimates from The Tax Foundation
The Tax Foundation is the oldest non-profit tax think tank in the country, founded in 1937. Its stated mission is “to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government.” The Tax Foundation estimates that the cuts may very well translate into 1.5 percent higher wages and result in an additional 339,000 full-time equivalent jobs.
Further expectations of TTF: The Tax Cuts and Jobs Act is a pro-growth tax plan, which should spur an additional $1 trillion in federal revenues from economic growth, with approximately $600 billion coming from the bill’s permanent provisions and approximately $400 billion from the bill’s temporary provisions over the budget window. These new revenues would reduce the cost of the plan substantially. Depending on the baseline used to score the plan, current policy or current law, the new revenues could bring the plan closer to revenue neutral.
AT&T Gives US Workers $1,000 Bonus
This giant company has made explicit promises to the public to hire more workers due to the new tax reform. The company’s current effective tax rate is 32.7 percent, and it plans to invest $1 billion more. AT&T announced Wednesday it will give its 200,000 U.S. workers a $1,000 “special bonus” because of the tax bill, although the company did stop short of raising wages.
“AT&T is committed to invest an additional $1 billion in the United States in 2018 if a tax bill with a permanent corporate tax rate of 21 percent is signed into law. Every $1 billion in capital invested in the telecom industry domestically creates about 7,000 U.S. jobs, research shows.”
CVS Pledges to Hire 3,000 More Workers
CVS has a 39 percent tax rate, and the company has pledged to hire 3,000 more workers. CVS Health CFO David Denton said in November:
“To the degree that we have [tax] relief, there’s a lot of investments that we think we can make within our business model that can more rapidly expand our business model across the country and deliver better care and higher quality and lower cost. So we would look to take the benefit of that and invest it clearly.”
Costco Pledges to Help Shareholders & Employees
Costco has a 34 percent tax rate and it has promised to help shareholders and employees. Costco CFO Richard Galanti said earlier this month:
“I think you’ll see us do what we do well, it’s merchandising and driving business and taking care of our employees and ultimately taking care of our shareholders. . . . We don’t know what we’re going to do yet because first, we got to figure out what’s actually going to happen.”
KROGER Pledges to Add More Jobs
Kroger has a 33 percent tax rate and has issued a vague pledge to add more jobs and give more to shareholders. Kroger CEO W. Rodney McMullen said in November:
“We’re very excited about where the tax reform is headed. We believe it will also influence us to continue to invest in our business, which will grow jobs. And I think what will end up happening is you’ll see us doing a balance of everything together. Some of it our shareholders will benefit from, some of it our associates will benefit from, and our customers will benefit from it as well.”
WALMART Believes Tax Reform will Grow Economy
Walmart has a 30 percent tax rate and has announced no specific plans. Walmart CEO Doug McMillon said in November:
“We haven’t done a lot of detailed planning on it yet, but I do think something’s going to happen and I’m optimistic that a lower tax rate for individuals as well as for business will help spur the economy and drive more growth. We think the conversation around a territorial system is appropriate. Beyond that, we’ll just have to wait and see how the details work out.”
There is a lot of talk going on about how the new tax reform will create jobs, and plenty of intelligent economists are supporters, but some disagree. Some think it won’t work. However, it is a fact that many companies have pledged to add jobs to their company following the new bill.
Perhaps the company’s statement that is most indicative of the TBD-status of this whole job-creation theory is Amazon’s.
Amazon CFO Brian Olsavsky in February:
“We have a long-standing practice of not commenting on regulatory or tax matter[s].”
Only time shall tell…
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