Tax Reform, AT&T’s Investment Commitment and Small Business

By at 9 November, 2017, 1:42 pm

Small Business Insider

by Raymond J. Keating-

It should be big news when the CEO of a major American businesses declares that the firm is ready to increase its annual domestic investment by $1 billion.

That’s what AT&T Chairman and CEO Randall Stephenson pledged on November 8. The enactment of tax reform is the trigger that would enable AT&T to move forward with this bold commitment.

Stephenson said, “With a rate of 20% combined with provisions for full expensing of capital expenditures for the next five years, we’re prepared to increase our investment in the United States. If the House bill is signed into law, we’d commit to increase our domestic investment by $1 billion in the first year in which the new rates are in place. And research tells us that every $1 billion in capital invested in telecom creates about 7,000 good jobs for the middle class.”

It was further noted in the company release, “AT&T’s year-one incremental investment will support the company’s fiber build to U.S. homes and businesses. Beyond 2018, a lower tax rate would incent AT&T to continue to deploy incremental capital to its fiber and future 5G builds.”

No doubt, assorted people, including in policy circles, were surprised by this pledge. They shouldn’t be. Indeed, this was a bold declaration by Stephenson, but it should not be surprising.

Quite simply, when you reduce taxes on any activity, then you’re going to get more of such activity. That’s Economics 101.

Allowing for full expensing of capital investment should spur such investment. And a vastly lower tax rate – reduced from the current 35 percent rate to 20 percent – would incentivize business investment and growth, and significantly improve the U.S. global position in terms of tax competitiveness.

Small Business Benefits

The good news gets even better when we recognize that these enhanced incentives don’t only apply to a big company like AT&T, but also to small and mid-size companies. For example, consider that, based on the latest Census Bureau data, 86 percent of C-Corps have less than 20 employees, and 96.7 percent less than 100 workers. Many of these small C-Corps are fast-growing firms or have the potential to be such. Perhaps even the next AT&T.

We also know that when U.S. corporations invest, a good portion of that spend is with small business suppliers.  A study conducted in 2010 by the Business Roundtable (BRT) found that large U.S. corporations collectively generated an estimated $1.5 trillion in sales for small businesses on an annual basis. Individual BRT members reported purchasing goods and services from an average of more than 6,000 small businesses every year. More investment by AT&T and others in the U.S. means more business for small businesses.

For good measure, the 95 percent of U.S. businesses that are not C-Corps (such as S-Corps and LLCs), and again are mostly small firms, would pay a lower top personal income tax rate, reduced from 39.6 percent to 25 percent, on business profits. That substantially lower tax rate would boost incentives for entrepreneurship, investment and business development. House tax negotiators are working to resolve some fairness issues for pass-throughs to ensure legitimate business profits qualify the 25 percent rate, along with what other fixable concerns. As noted with the investment announcement by AT&T, increased business investment from small firms would be very good news in terms of faster economic, productivity, income and job growth.

A positive shift in incentives for investment is critical. After all, slow economic, income and job growth experienced over the past decade largely has been about sluggish private-sector investment.

In the end, deep tax rate reductions for businesses will generate faster economic growth due to improved incentives for investing and entrepreneurship.  The GOP tax bill aims to drive higher economic growth, and that goal is critical and must not be forgotten as the process and negotiations move forward.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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