Although we’re just a month into 2018, there’s no lack of criticism for the recently enacted GOP tax reform. Turn on the TV, log into social media or tune into the radio and you’ll be inundated with commentary on how this tax reform falls short. It seems negative reports and analysis are the new norm from news outlets everywhere, as it has been all throughout this young year.
Too many commentators continue to judge the tax changes based on their political views, not economic truth. Plain and simple, this isn’t helpful.
Critics still claim the new tax plan won’t benefit working Americans. But if we put politics aside and look at the real impact, we see a much different story. I believe these reforms will help our nation’s economy and its citizens. The data show that’s already happening.
If we leave our political leanings at the door and look at the genuine, positive impact the reform has already had, it’s clear that the persistent momentum from Washington is helping drive Wall Street. I think of this as a Washington-Wall Street jet stream; Washington has made policies that are hugely impactful to our economy, and Wall Street is cruising along in the tailwind.
Since the passage of tax reform late last year, over 260 US companies have announced wage increases, salary hikes, benefit expansions, bonuses and 401(k) match increases that are directly attributable to the new tax law. That list is growing every day.
That translates to more than three million Americans getting some sort of direct financial incentive from their employer companies due to tax reform. This windfall comes on top of the tax cuts that the vast majority of US taxpayers will see this year. It is also on top of the billions of dollars companies are going to put back to work in the US due to the new reform.
This is real, un-politicized data. This is the news Americans should be hearing.
Still, critics remain as determined as ever to spotlight perceived flaws with the GOP tax reform. Let’s review some numbers – data on just seven of the companies that are making billion-dollar (yes, billion) reinvestments in the American economy:
1. Apple – Under the new reform, this Goliath of tech companies is allocating $2,500 bonuses for employees in the form of restricted stock units. Apple has also announced $30 billion in additional capital expenditures over the next five years. The forecast is to hire 20,000 new employees; increase their internal support of coding, science, technology, engineering, arts and math education; and increase their support for US manufacturing.
2. AT&T – About 200,000 employees will get $1,000 bonuses, and capital expenditures will increase by $1 billion.
3. Comcast – Over the next five years, Comcast plans to invest $50 billion in infrastructure, And the company is giving 100,000 employees $1,000 bonuses.
4. FedEx – This is a big one. FedEx has committed more than $3.2 billion in wage increases and bonuses and another $1.5 billion in capital expenditures.
5. Fiat Chrysler – The car maker has announced $2,000 bonuses for 60,000 of its employees. The company also plans to invest $1 billion in a Warren, Michigan factory that will employ 2,500 new workers.
6. JP Morgan Chase – This investment and banking giant has raised their base wage for 22,000 employees. The company also expects to create 4,000 new jobs and open 400 new branches. And that’s not all. JPMorgan is all-in under the new tax plan, announcing a $20 billion commitment over the next five years to help employees, job growth, and local economic growth. Part of that fund will go to philanthropy – approximately $1.75 billion over the next five years. They are also increasing small business lending by $4 billion.
7. Jordan Winery – Sonoma, CA-based Jordan Winery is giving $1,000 to their employees and encouraging other companies to do the same. Owner John Jordan said, “Just imagine if we can get 5,000 small businesses, each with around 200 employees, to join us in giving $1,000 bonuses to their employees. We’d be putting close to $1 billion into the pockets of working Americans even before the withholding tax tables change.”
Folks, you know I’m a big believer in numbers and data. These are the cold, hard facts. And looking at just seven of the 262 American companies that have announced that they will put tax reform to work for their employees and our nation’s economy, we see that new tax plan stands to be a massive net-positive for all of us.
Still, there is dissent among the ranks, especially when we politicize the economy. Of note is Joseph E. Stiglitz, a Nobel laureate in economics, professor at Columbia University and Chief Economist at the Roosevelt Institute. Also voicing opposition is Senate Minority Leader Chuck Schumer, who said that the GOP tax plan will increase share buybacks and dividends, not wages. But what about the more than three million people so far that are seeing compensation increases?
You and I both know that taxes are going down – not up – for middle-income families. I’ve run the numbers and done plenty of other reports on how tax reform will affect the majority of Americans.
People like Stiglitz and Schumer base their argument on the expirations of the individual cuts in 2027, and the new chain-weighted Consumer Price Index (“CPI”) that’s now being used to adjust tax brackets for future years.
First thing’s first. It is true that the individual portion of tax cuts (not corporate cuts) under the reform is slated to sunset back to 2017 levels in the year 2027. More on that in a bit.
Looking at chain CPI, this is an inflation measure that assumes people make substitutions when something gets more expensive. For example, if the price of apples were to skyrocket, I would buy my kids oranges instead. When using chain CPI, growth is estimated to be slower than when we use a regular CPI method of measuring inflation. But wages should follow normal CPI growth, not chain CPI growth.
What some critics are arguing is that, hypothetically, Americans will hit higher tax brackets faster as their wages rise, and they will do so sooner. This is suspect logic. And I am not buying into it.
Even the Tax Policy Center (a nonpartisan, or left-leaning organization, depending on who you ask) says that if or when the new tax rules sunset, middle-income taxpayers will see roughly a flat tax bill. The Center also reports that, under the new reform, middle-income taxpayers will receive an average tax cut of $930 per household in 2018. What does the Center believe will happen down the road? They are predicting Americans will still see tax cuts, averaging $910 per household in 2025.
As to the fear around the sunset provision, it’s likely that the tax reform could become permanent and that tax bills will still be lower in the future than they would have been under the old rules. Only time will tell.
What is certain is that, when we put politics aside, tax reform seems to do nothing but good for American families and the economy. And that’s good enough for me.
Check Out: How Tax Reform will Impact Earnings